News that the US and Russian Presidents plan to meet in Alaska on Friday raised hopes of progress towards an end to the war in Ukraine and came after a positive week for stocks, which were buoyed by strong earnings. With the bulk of S&P 500 companies having reported, 80% have beaten expectations, helped by a weaker dollar and earlier analyst downgrades. The positive earnings news helped equity investors look past data from the Institute for Supply Management (ISM) that suggested a cooling in the US economy. The S&P 500i rose 2.4% (in USD) on the week and the Nasdaqii gained 3.7% (in USD). On trade policy, President Trump said the US will impose a 100% tariff on imports of semiconductors, but he exempted companies that are manufacturing in the US or have committed to do so. Despite Switzerland failing to negotiate down a 39% US tariff rate, Swiss stocks were broadly flat on the week, with many large cap companies able to avoid or mitigate the impact of the levy. Gold, much of which is refined in Switzerland, rose on concerns about a US tariff only for media to report that such a levy may not be imposed after all. On monetary policy, the Bank of England had to hold two rate votes for the first time in its history before cutting rates by a quarter point,highlighting a more hawkish committee than expected.
Quote of the week
On the 80th anniversary of the US atomic bombing of Japan, the US Ambassador to Japan, George Glass, said: “The people of Hiroshima and Nagasaki and their message of peace and hope are an enduring reminder of the power of reconciliation”.
Key data
The ISM indices for manufacturing and non-manufacturing sectors in the US were weaker than expected in July. Q2 nonfarm productivity increased above expectations in Q2 (+2.4%, quarter-over-quarter annualised). Chinese PPI fell 3.6% on the year in July, as deflationary forces remain. Japanese household spending rose 1.3% in June from a year earlier, short of expectations for a 2.7% increase.
[i] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, S&P 500 Composite (net 12-month return in USD): 2020, 18.4%;2021, 28.7%; 2022, -18.1%; 2023, 26.3%; 2024, 25%.
[ii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, Nasdaq Composite (net 12-month return in USD): 2020, 44.9%; 2021, 22.2%; 2022, -32.5%;2023, 44.6%; 2024, 29.6%.