• Macro: Equity markets were mixed yesterday as the Eurostoxx600 fell, whilst in the US, the S&P500 and the Nasdaq both finished higher with political developments, dovish Fed commentary and the start of the Q2 earnings season each driving investor sentiment. From an economic perspective today, the main releases of note are the German ZEW survey, which gauges investor sentiment, prints for July, when both “Expectations” and “The Current Situation” are expected to decline relative to June. Retail Sales in the US are expected to have fallen MoM in June. From the ECB and the FED, we will have commentary from Villeroy and Kugler.
• Stock: Overnight, Rio Tinto issued it Q2 2024 Production results. (Comment Attached)
• Debt: It was a mixed day for core bond yields as dovish commentary from Powell increased US rate cut expectations .

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Equity and bond market volatility intensified last week as markets attempted to assess the implications of the failure of US banking groups Silicon Valley Bank (SVB) and Signature Bank of New York (Signature), while the volatility was exacerbated by a focus on Credit Suisse which was forced to avail of CHF50bn ($54bn) liquidity facility from the Swiss National Bank as the shares came under intense selling pressure and which, over the weekend was acquired by its largest Swiss rival UBS for CHF3bn.

For the week, equity markets declined by on average 0.5% however there was a significant divergence in the regional performance of markets with the UK declining by over 5% and European indices declining by just over 4%, while US indices were broadly unchanged while the tech-heavy NASDAQ outperformed with a gain of just under 6%.

This divergence in the weekly performance was due to the knock-on effect on the European banking sector of the weakness in Credit Suisse which was in focus due to issues in respect of the late release of its 2022 annual report following issues being raised by the US Securities & Exchange Commission over the reporting of historic cashflows. This delay, following on from the sector wide uncertainty caused by the closures of SVB and Signature, merely added to volatility in the European and UK banking sectors.

As a result of this increased volatility, bond markets saw their biggest declines in terms of yield in over 30 years with the US 2 Year Treasury yield declining by almost 70 basis points on the week to 4.03%, the US 10 Year Treasury yield declining by over 40 basis points to 3.42%, and the 10 Year German Bund yield declining by 37 basis points to 2.20% as interest rate futures markets aggressively re-priced global interest expectations.