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Fundamental Analysis

Equities Decline Amid Signs of Weakening Global Demand

  • Fed Chair Powell’s upcoming congressional testimony could impact the market.
  • The benchmark S&P 500 has gained 14.3% this year.
  • China reduced its lending benchmarks to stimulate weak demand.

On Tuesday, US equities declined, closing with negative results as investors took profits after a sustained rally amid indications of weakening global demand. Fed Chairman Jerome Powell’s upcoming congressional testimony on Wednesday could further impact the market. 

The S&P 500 and the Dow were weighed down by Exxon Mobil Corp, causing all three major US equity indexes to end the session in the red but not at their lowest points. This broad sell-off follows the Nasdaq’s longest weekly winning streak since March 2019 and the S&P 500’s longest since November 2021. With Tuesday’s loss, the benchmark S&P 500 has gained 14.3% this year. 

Investors are now focused on Powell’s two-day testimony before Congress, beginning with the US House Financial Services Committee on Wednesday. They will scrutinise his statements for clues on how long the central bank will maintain its restrictive policy. 

Elsewhere, concerns about slowing global demand increased after China reduced its lending benchmarks to stimulate weak demand. This overshadowed a 21.7% surge in housing starts, the largest monthly increase in thirty years. 

The energy sector experienced the biggest daily drop in over a month, with energy shares falling 2.3%. This decline was due to signs of declining Chinese demand that caused a slide in crude prices.

In European markets, shares of German speciality chemicals maker Lanxess fell on Tuesday, causing a decline in German stocks. Lanxess lowered its earnings forecast, resulting in a significant drop of 15.4% to its lowest level over three years. The company reduced its second-quarter and annual core profit forecasts, citing a lack of demand recovery in June as customers continued to destock. 

Meanwhile, a slight interest rate cut by Beijing had minimal impact on boosting investor sentiment regarding Europe’s China-exposed shares. 

In the UK, attention is focused on elevated mortgage rates ahead of important inflation data and the Bank of England’s policy meeting on Thursday. 

UK mortgage rates (Source: Moneyfacts)

UK mortgage rates (Source: Moneyfacts)

On Monday, borrowing costs for British home-buyers on two-year fixed-rate mortgages surpassed 6%. This marked the highest level since the period following the “mini-budget” crisis in September. The FTSE 100 index in London slipped 0.3%. 

Investors are now eagerly anticipating the testimony of US Fed Chair Jerome Powell, seeking further indications about the monetary policy outlook for the world’s largest economy.