U.S. bond yields rose, mixed equity performance, stable USD/EUR, declining oil and gold prices, and Bitcoin increased by 2.74%.

U.S. bond yields increased across the yield curve, with the 2-year yield rising to 4.521% and the 10-year yield increasing to 4.242%. This rise occurs in an environment where the market is pricing in an over 80% probability of rate cuts in September.

Equity markets displayed mixed performance throughout the week. Small and micro-cap stocks outperformed large caps, ending the week positively, and highlighting the undervaluation of these smaller stocks. Conversely, the S&P 500 and Nasdaq 100 experienced significant declines, primarily due to their heavy reliance on the "Magnificent 7" stocks, which fell by 4.76%.

The U.S. dollar remained stable against the euro, with the USD/EUR exchange rate at 0.9186. WTI crude oil prices declined for the second consecutive week, driven by weaker-than-expected data from China, which could impact demand. Gold prices slightly decreased over the week but are expected to perform well if Trump is elected and the Fed cuts interest rates. Meanwhile, Bitcoin saw a 2.74% increase in the cryptocurrency market during the week.

Despite declines in auto and gasoline sales, the U.S. retail sector exhibited resilience. Industrial production increased, though inconsistently. The housing market remains constrained due to a persistent shortage and high mortgage rates.

The US retail sector demonstrated resilience with an increase of 2% despite declines in auto and gasoline sales, supported by gains in non-store sales, building materials, clothing, furniture, and health and personal care. Industrial production increased by 1.6% YoY and 4.3% in Q2, with manufacturing showing modest improvements amid mixed sector performances. The housing market saw a rise in starts to 1.35 million, driven primarily by multi-family units, although single-family starts and permits declined. Despite higher new housing supply and consistent builder price cuts, the sector continues to face a structural deficit. These economic indicators suggest that the Fed may consider rate cuts in September.

Despite declines in auto and gasoline sales, the US retail sector strengthened in June, driven by gains in other areas, leading to overall balanced sales and exceeding expectations amid challenging economic conditions.

Despite a 2% decline in auto sales and a 3% drop in gasoline station sales in June, the US retail sector showed resilience with notable gains elsewhere, balancing overall sales figures and exceeding expectations. Hot weather likely drove increased foot traffic to air-conditioned stores, boosting sales in non-store (up 1.9%), building materials (up 1.4%), clothing (up 0.6%), furniture (up 0.6%), and health and personal care segments (up 0.9%). Although headline sales remained flat MoM, revisions to May figures showed a 0.3% growth. The data, reflecting nominal US dollar values, indicate real retail sales are still 4 percentage points below their 2021 peak, crucial for GDP calculations. The upcoming GDP report is expected to confirm a slowdown in real consumer spending growth, constrained by flat real household incomes, depleted savings, and high borrowing costs. Coupled with declining consumer confidence and rising unemployment, these factors point to a more cautious consumer sector. Consequently, slower consumer spending growth, moderating inflation, and increasing unemployment may prompt the Fed to consider a less restrictive policy stance starting in September.

We expect that retail spending will remain stable through September due to the summer season. However, by year-end, we expect a decline in consumer spending and retail sales due to a deteriorating labour market.

U.S. factory output exceeded expectations in Q2 despite high costs. Industrial production rose 1.6% annually; manufacturing showed mixed performance, suggesting a cautious recovery.

U.S. factory output surpassed expectations, driving a solid rebound in second-quarter performance despite high borrowing costs. For the first time this year, industrial production and its manufacturing component posted two consecutive monthly gains through June. Year-over-year, industrial production increased by 1.6%, rising 4.3% in the second quarter. Industrial capacity utilisation climbed to 78.8%, and manufacturing capacity utilisation to 77.9%, both slightly below their long-term averages.

Manufacturing production rose by 0.4%, with durable goods production remaining flat due to offsetting losses in metals and miscellaneous goods and gains in autos and electrical equipment. Nondurable manufacturing increased by 0.8%, mining output by 0.3%, and utilities production by 2.8%. Despite soft PMI readings, manufacturing activity has been firming, with a YoY increase of 1.1% in June. However, about 32% of manufacturing sub-sectors experienced an annual contraction in June, and on a three-month average, 49% of sub-sectors had lower output than last year. This positive momentum is encouraging, but it is too early to determine if it signals a sustained recovery in the manufacturing sector.

We anticipate industrial production will rebound as inflation eases, reducing costs. We also expect the Fed to cut interest rates by year's end, which could further support this recovery.

Housing starts rose to 1.35 million, driven by multi-family units, despite a decline in single-family starts and permits. New housing supply increased, and builder price cuts remained steady amid an ongoing structural housing deficit.

Housing starts reached an annual rate of 1.35 million, surpassing the consensus forecast of 1.3 million. This figure represents a 3.0% increase over the revised May but remains 4.4% below the June 2023 rate. The unexpected increase is primarily attributed to the multi-family housing sector, whereas single-family housing starts fell to their lowest level since October 2023. This decline is consistent with the drop in homebuilder sentiment to its lowest since December, driven by elevated mortgage rates. However, a positive note in the sentiment report is the increase in the sales expectations sub-index, suggesting builders anticipate lower mortgage rates and a potential bottoming out of single-family starts.

Building permits in June also exceeded expectations driven by a rise in multi-family permits. Single-family permits decreased by 2.3% from the previous month and 1.3% YoY. Despite the decline in future single-family supply as indicated by permits and housing starts, the market saw an increase in new supply. Single-family completions rose nearly 2% from the previous month and 3% from the previous year, while multi-family completions surged 26% MoM and 40% YoY. Consequently, the new housing inventory is higher than it was a year ago. According to the National Association of Home Builders, 31% of builders reduced prices in July, up from 29% in June, with the average price cut remaining steady at 6% for the 13th consecutive month. Despite these challenges, the housing market continues to face a structural underbuild, with a long-standing supply deficit that builders are gradually addressing.

We do not foresee improvements in the sector until interest rates decrease, which will consequently reduce mortgage rates. A partial recovery is anticipated by the end of the year; however, a significant recovery is not expected until 2025. In terms of investment, investors remain focused on assets such as equities and fixed income rather than real estate.