Pictet Group
Weekly house view | Fragile France
The week in review
In a shortened week, the S&P 500[i] put in a positive performance (+2.0% in USD), buoyed at the end of it by stats that suggested a gradual cooling of the US labour market. But US small caps, historically more influenced by the economic cycle than large caps, struggled, as did the S&P 500 Equal Weight index. In Europe, whatever the concerns surrounding the run-off French election, the Stoxx Europe 600[ii] had a positive week, rising 1.1% (in euros). France’s CAC 40[iii] did even better, rising 2.1%. The French bond market also calmed down, with spreads over Bunds narrowing last week. Spreads for euro corporate bonds also shrunk while both the USD and Swiss franc lost ground against the euro. Labour’s well-signalled victory in the UK election had a positive impact on the domestically oriented FTSE 250 index[iv], which climbed 2.5% (in GBP), while sterling rose and short-term gilt yields fell. Oil prices rose as the US oil inventories dropped.
Elections
“Today, power will change hands in a peaceful and orderly manner, with goodwill on all sides. That is something that should give us all confidence in our country’s stability and future”. Rishi Sunak (ex-) UK prime minister
Key data
Nonfarm payrolls in the US rose 206,000 in June, down slightly from a revised 218,000 in May but up from 108,000 in April. Average hourly earnings went down from an annual 4.1% in May to 3.9% in June while unemployment rose to 4.1% from 4.0%. Separately, the ISM purchasing managers’ index for manufacturing dipped to 48.5 in June from 48.7 in May while the ISM services index fell sharply to 48.8 from 53.4. Headline consumer inflation in the euro area dipped to an annual 2.5% in June from 2.6% in May. Industrial production in Germany decreased by 2.5% in May over the previous month and was down 6.7% on a year before. French industrial production dropped 2.1% in May and was down 0.4% year on year.
[ii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, STOXX Europe 600 (net 12-month return in EUR): 2019, 27.6%; 2020, -1.5%; 2021, 25.5%; 2022, -10.1%; 2023, 16.5%.
[iii] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, CAC 40 (net 12-month return in EUR): 2019, 30.5%; 2020, -5%; 2021, 31.9%; 2022, -6.7%; 2023, 20.1%.
[iv] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, FTSE 250 (net 12-month return in GBP): 2019, 28.9%; 2020, -4.6%; 2021, 16.9%; 2022, -17.4%; 2023, 8%.