June 2023 was a strong month for Tech Stocks

Once again, contrary to expectations, the UK has avoided recession.

The FTSE and European stock markets had a good final day of the week, month, quarter, and half year, as new data confirmed that the UK avoided recession over the winter.

London's benchmark index rose 0.8%, the CAC gained 1.19% in Paris, and the Frankfurt DAX was 1.26% higher.

On the month that made the FTSE flat and underperforming its peers. The UK consumer keeps expecting more bad things to happen and we keep on taking money out of the market. Eventually, this will stop, and the UK market will have some catching up to do.

According to the Office for National Statistics on Friday morning, the British economy grew by 0.1% in the first three months of this year, as well as in the final quarter of 2022.

“Any growth is good but remember this growth still leaves the UK economy struggling to make up the ground it lost during the pandemic, and although we are in the same boat as Germany, the failure to have properly capitalised on the reopening momentum is cause for concern," said Danni Hewson, head of financial analysis at AJ Bell.

It came as Nationwide reported that UK property prices rose last month halting the drop from the previous month.

Compared with June last year, house prices are down 3.5%, largely unchanged from the 3.4% in the previous month after rising 0.1% between May and June.

The average house price was £262,239 in June, with London having the second-sharpest year-on-year decline, at 4.3%. Given the sharp rise in interest rates, the housing market is proving more resilient than we expected.

Nationwide’s chief economist Robert Gardner said: “Longer term interest rates, which underpin mortgage pricing, have increased sharply in recent months, in response to data indicating that underlying inflation in the UK economy is not moderating as fast as expected.

The average two-year fixed residential mortgage rate on Friday is 6.39%, up from 6.37% on Thursday, according to financial information website Moneyfacts.

The average five-year fixed residential mortgage rate is 5.96%, up from 5.94% on Thursday, as it approaches the 6% mark.

On the week, in Europe, the pan-European STOXX Europe 600 Index rallied 1.94% on hopes that China would do more to boost consumption and that lower-than-expected inflation data could mean that interest rates are near their peak.

All major stock indexes also posted gains. France’s CAC 40 Index advanced 3.30%, Italy’s FTSE MIB climbed 3.75%, and Germany’s DAX increased 2.01.

European government bond yields held near the week’s highs as inflation eased but remained above the European Central Bank’s 2% target. The yield on the benchmark 10-year German government bond approached 2.4%, while the yields on Italian sovereign bonds of the same maturity ended near their weekly highs despite data indicating that confidence among manufacturers had weakened.

Annual inflation in the eurozone slowed for a third month in June to 5.5% from 6.1% in May, according to an initial estimate from the European Union’s statistics office. The result was lower than the 5.6% forecast by economists polled by FactSet. Core inflation—which excludes energy, food, alcohol, and tobacco prices—ticked up to 5.4% from 5.3%.

News reports from the ECB’s annual Forum on Central Banking suggested that policymakers are still likely to vote for another interest rate increase in July. ECB President Christine Lagarde acknowledged that the central bank had made “significant progress” in combating high inflation but asserted that policymakers “cannot declare victory yet.”

According to Lagarde, uncertainty over how tight labour markets and large wage increases will influence prices means "it is unlikely that in the near future, the central bank will be able to state with full confidence that the peak rates have been reached.” Even so, some Governing Council members, including Vice President Luis de Guindos, opined that another hike in September was less certain, with the decision depending on incoming economic data.

Leader Board - Top Trading Strategy

In the US, a favourable macro backdrop helped end a solid quarter on a solid note.

Positive growth and inflation surprises helped the major benchmarks round out a good quarter on a high note, with the S&P 500 Index recording its best weekly gain since the end of March.

The rally also broadened, with small-caps and value shares outperforming, and the equal-weighted S&P 500 Index handily outpacing its market-weighted counterpart. This tends to be a good sign for the overall market, rather than the very specific, popular retail stocks that have led the way so far this year.

On that note, Apple closed trading Friday with a market capitalization above USD 3 trillion, marking a first for a publicly traded company. The Wall Street Journal reported that Apple’s valuation has surpassed that of five of the S&P 500’s 11 sectors in their entirety (materials, real estate, utilities, energy, and consumer staples). It is also worth more than the entire FTSE 100 (around £2 trillion).

Inflation data released Friday appeared to provide the biggest boost to sentiment. The Commerce Department reported that its personal consumption expenditures price index had increased by 0.1% in May, bringing its year-over-year increase down to 3.8%, its lowest level since April 2021.

The core (excluding food and energy) PCE index, considered the Federal Reserve’s preferred inflation gauge, fell back to 4.6% on a year-over-year basis, still well above the Fed’s 2% target, but seemingly calmed fears of a reacceleration in price pressures after April’s upside surprise.

Japan’s stock markets gained over the week, with the Nikkei 225 Index rising 1.2% and the broader TOPIX Index up 1.1%. Halfway through 2023, Japanese equities were among the world’s best performers in local currency terms, although the yen's weakness to a degree moderated returns in other major currencies.

In China, stocks ended mixed, as weak economic indicators offset optimism that the government might implement additional measures to bolster economic growth. The Shanghai Stock Exchange Index gained 0.13% in local currency terms, but the blue-chip CSI 300 lost 0.56%. In Hong Kong, the Hang Seng Index inched up 0.14%.

The Week Ahead:

Next week is a quiet one for UK data and will be a holiday-shortened trading week in the U.S., with markets closed on Tuesday for Independence Day.

The latest updates on the labour market will become available on Thursday, the Bureau of Labor Statistics will issue the Job Openings and Labour Turnover Survey report, tracking the number of openings, hires, quits, and separations for the month of May.

Job openings are projected to have fallen to 9.9 million last month, from 10.1 million in April. Also on Thursday, payroll provider ADP will release its National Employment Report for June tracking private sector payrolls, which are projected to have risen by 180,000.

The June nonfarm payrolls report will be released on Friday. Economists project U.S. employers added 200,000 jobs in June, decelerating from a hotter-than-expected gain of 339,000 in May, while the unemployment rate is expected to remain unchanged at 3.7%. If job growth exceeds expectations, it could strengthen the Fed’s case for more rate hikes to cool the economy and inflation.

Having said that, we see a lower-than-expected inflation number coming out on the 12^thJuly, so a dip from a strong jobs report might not last long. We feel that the fight against inflation has turned a corner, and the bumper monthly numbers are being phased out, which will lead to lower year-over-year numbers in time. The US is ahead of Europe and the UK on this, but only by a few months.

On Wednesday, the Federal Reserve will release minutes from the latest FOMC meeting held earlier this month, where the U.S. central bank held interest rates steady after hiking them 10 consecutive times since March of last year, in an effort to tame the highest inflation in four decades.

Traders are projecting the Fed will resume hiking interest rates at its next policy meeting in July, with an almost 90% probability of a hike by 25 basis points, according to Fed funds futures data collected by CME Group. This would set the benchmark federal funds rate in a range of 5.25% to 5.5%, the highest in 22 years.

Major economic figures to watch out for this week:

‍