US Equity Market Retreats for Third Consecutive Week, Bond Yields and China Slowdown Concerns Weigh

Market Summary

Last week, stock markets in the United States, Europe and Japan closed lower. Chinese stocks closed lower.

The US equity market experienced retreat for the third consecutive week, influenced by higher bond yields and concerns about slowdown in China. S&P Index dropped 5.15% from its July 26 peak, with growth shares holding up better than value shares.

Simultaneously, Europe’s stocks closed lower due to concerns on. China’s economy and heightening European interest rates. Accompanied by strong wage growth and quickening core inflation, this may influence the Bank of England to raise their interest rate.

Japanese stocks fell despite increase in GDP, exceeding forecasts and are driven by external demands and net exports.

Chinese stocks has dropped due to concerns regarding the country’s economic recovery, China’s economic activity weakened from slower industrial outputs, retail sales and fixed asset investment growth. To combat this, the People’s Bank of China has cut rates to stimulate weak demand.

Brazil’s central bank has kept stable their key policy rate but may cut rates due to weak growth and improving inflation.

Major News

The US core retail sales has climbed up to 1% and exceeding expectations of economists for a -0.3% decline, indicating resilience in consumer spending despite the existing inflationary pressures

The United States’ Treasury yields has approached 16-year high, reaching 4.3%. This rising yields has hit technology stocks hard. With NASDAQ composite being tech-heavy, causing a decline in the index.

Eurozone inflation rate was confirmed 5.3% in July 2023, lowest since January 2022. This was mainly due to further decline in energy prices, together with the cost eased for alcohol and tobacco and non-energy industrial goods.

What Caught Our Attention

The US stocks closed lower as impacted by the increasing bond yields. The S&P 500 index has ended the week down by 5.15% from its July 26 peak. While the growth shares should have suffered the most due to the rising rates, the small-cap stocks performed the stocks.

Despite the decline in the equities market, US’ retail sales has jumped 0.7% over the month, exceeding estimates. While retail sales were flat over the past year due to the simultaneous rise in the consumer price index, sales in specific categories indicates increase in discretionary spending. Sales at restaurants and bars risen by 11.9%, while online purchases jumped 10.3%.

Source: Kredens Capital Management, T. Rowe Price, Bloomberg, Financial Times, Wall Street Journal, The Economist, Nikkei Asia