Investment Viewpoint: the lull before the rush

Simplify the complex with clear and concise market insights direct from our investment experts every week.

Markets and macro insights with Bernard Swords, Chief Investment Officer

How did markets fare last week?

• Last week, it felt like a summer lull had settled on financial markets. Equities were down only slightly in local currency terms and the euro bond market gave a slight positive return. However, a nervousness did begin to set in, with oil prices already up about 3%. In addition to developments over the weekend, with their as yet unforeseeable outcomes, the July 9 deadline for trade negotiations approaches, producing further volatility. Overall, the next few weeks will be testing times for equity markets. However, at the moment, we do not see the current developments as sufficient to end the global economic expansion. If there are significant setbacks in equity markets, we would view them as potential buying opportunities.

• Energy is currently proving to be the strongest sector, all due to the rising oil price. Otherwise, the new economy sectors (IT and Communication Services) are the only growth sectors this month. Confidence in the profitability of AI has been restored by good results and outlook statements from some of the Mega Caps in this and related fields.

• Goodbody did recently increase its exposure to the IT sector but would refrain from further investment in that area at the moment. We can see that valuations of the sector are returning to high levels, suggesting that the good news from the largest players has already been priced into these estimates.

What was the outome of last week’s FOMC meeting?

• The FOMC (the interest rate setting committee of the Federal Reserve) met last week, and as expected, left interest rates unchanged. The committee revised its economic projections and now expects the US economy to grow by 1.4% in 2025, with core PCE inflation (its favoured measure of inflation) predicted to hit 3.0%. These are in line with wider consensus projections, so no surprises. Interestingly, the ‘dot plot’ (representing individual committee members’ projections of interest rate changes) remained unaltered, still indicating two cuts before the end of the year. However, the number of members supporting this projection did decrease.

What were the main data releases?

• Hard data was on balance encouraging this week. Retail Sales were better than expected in the US and China. In the US, core Retail Sales were up 0.4% month-on-month, showing little payback so far for any frontloading due to tariff uncertainty. China’s retail sales growth jumped to 6.4% in May, although this was boosted by state subsidies for trading in household goods, which will expire soon. Such a level of consumer activity prior to the next round of tariff increases adds to our confidence that these tariffs will curb economic activity but not derail expansion.

• Manufacturing data did not show a comparably positive result. US Industrial Production was flat month-on-month and is now up only 0.6% year-on-year. In China, production is more robust, rising 5.8% year-on-year, but this is still lower than forecast. These figures reflect no more than the demand boost that came from over ordering prior to the imposition of tariffs. Industrial activity is therefore slowing, if not to a large extent.

The week ahead: what to watch out for

This week, the only data released is on consumer sentiment in the euro area and the US. Chair of the Federal Reserve Jerome Powell will deliver testimony to Congress and his remarks are likely to generate attention. Otherwise, developments in the Middle East and their broader international impact will of course be the main focus, particularly the continuing effect on oil prices.