Market Update

Despite the appearance of a calm surface in global equity markets, this week was far from uneventful as various intriguing stories unfolded beneath. Chinese growth painted a mixed picture, with Q2 GDP slowing to 6.2%, its weakest pace since 1992, due to the ongoing US-China trade tensions. Yet, June's data, including factory output, retail sales, and fixed asset investment, surpassed estimates, indicating that government stimulus efforts were cushioning the trade impact.
However, Donald Trump, with his threat of additional tariffs on China, injected uncertainty into the markets. Paradoxically, this heightened the probability of a US interest rate cut by the Federal Reserve. The Fed's Beige Book reflected concerns about slowing job gains, weaker inflation, and widespread anxiety about trade-related uncertainties. Fed Chairman Jay Powell affirmed vigilance, asserting that the Fed would take necessary actions to sustain economic expansion. The Chicago Fed President, Charles Evans, advocated rate cuts to boost inflation.
These developments virtually solidify the anticipated Fed interest rate cut during their meeting on July 31, 2019. While a 0.25% cut seems probable, a larger 0.5% reduction is feasible, emphasizing the proactive approach to cushion trade uncertainty.
Beyond US interest rates, the focus this week turned to the US earnings season. Results were mixed, with companies like eBay, IBM, ASML, and Philip Morris outperforming expectations. However, Netflix faced customer losses in the US due to subscription price hikes, while CSX, a railroad freight operator, disappointed due to US-China trade uncertainties.
Looking ahead, the spotlight shifts to significant events like US Q2 GDP, Japanese CPI, and an ECB monetary policy meeting. Additionally, on July 23, 2019, the UK anticipates the announcement of its next Prime Minister, a pivotal moment with widespread implications.