Commentary
Last week, global equities delivered a broad market rally as US headline prices declined for the first time since 2020. In June, the US headline CPI fell by -0.1% m/m, while core CPI rose by a less than expected 0.1%. In annualized terms, headline and core CPIs rose by 3.0% and 3.3%, respectively. The dynamic was welcomed by monetary authorities, as Chicago Fed President Goolsbee labeled the release “profoundly encouraging”. In response, markets are now more optimistic about the near-term Fed policy, giving a fair chance to three 25bps cuts in 2024.
As a result, US small-caps and value stocks outperformed the broad market, with Russell 2000 gaining a strong 6%. In sector terms, Real Estate and Utilities were the primary beneficiaries.
Fixed income markets saw a decline in yields. In response to falling inflation, bond prices rallied last week (bond prices and yields move in opposite directions). The, 2 and 10-year treasury yields lost 14bps and 7bps, respectively. Importantly, yields are still way more attractive as compared to the start of 2024.
Investors should appreciate the dynamic nature of financial markets and make use of opportunities when presented with them. More downside surprises in US inflation are likely to have further negative pressure on fixed income yields.
