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Epic Investment Partners Views: The Week Ahead

This week kicked-off with the China Caixin manufacturing PMI which climbed to a three-year high of 51.8 last month. In contrast, the official figures showed no change in the manufacturing PMI, at 49.5, while the non-manufacturing PMI fell to 50.5 in June. Later today we have PMI prints for June from the eurozone, and the UK. The ECB forum (through to July 3rd) will be watched closely by markets, as will the Euro Finance Summit. Eurozone CPI on Tuesday and US job openings will garner market focus, China Caixin services PMI and US ISM services will be scrutinised on Wednesday as will the FOMC minutes from the June meeting. Thursday, US Independence Day, sees the UK elections, and EU tariffs on Chinese electric vehicles commence. Eurozone retail sales and the all-important US employment report will keep markets on their toes on Friday. Early estimates for nonfarm payrolls stand at +190K jobs added in June, unemployment sticking at 4.0% with average hourly earnings easing to 0.3%mom and 3.9%yoy. The French elections and US presidential campaign will also garner much interest this week.  

A busy week at the ECB Forum in Sintra, sees the Fed’s Powell (Tue) and Williams (Wed), and the ECB’s Lagarde (Tue and Wed), Schnabel (Tue), Guindos (Tue and Wed), Elderson (Tue), Cipollone (Wed), and Lane (Wed) speak.  

Markets last week grappled with key US inflation data and mixed Fed rhetoric. The yield on the 10-year UST rose 14bps to 4.40%, while the 2-year was up 2bps to 4.76%. The S&P Index closed marginally lower over the week, the dollar was slightly higher, and Brent crude gained 1.37% closing the week at $86.41pb. The Japanese yen also came into sharp focus as it hit a 38-year low, closing above 161 against the dollar, and a record low against the euro.  

In terms of Fed speak, Goolsbee discussed the effects on the real economy from remaining “extra restrictive for too long”. He cited rising unemployment insurance claims, a rise in credit card delinquencies and a pullback in consumer spending as reasons he does not believe the real side of the economy is overheating. Later, Bowman emphasised the need to maintain elevated borrowing costs due to potential upside risks to inflation. She cited factors like limited supply improvements, immigration policy changes, labour market tightness, and fiscal stimulus as potential price pressures. Bowman warned against premature rate cuts and reflected on the Fed’s delayed inflation response in 2021. She also criticised proposed bank capital regulations, suggesting they could negatively impact banking services and market liquidity. Barkin stated that the inflation battle has not been won, adding that the US economy will likely remain resilient as long as employment remains low and asset valuations high. Bostic maintained one rate cut in Q4 stating that inflation is “moving in the right direction”.  

Later we had some mixed key data prints. US Q1’24 GDP edged up marginally to 1.4%qoq, however, the third reading of personal consumption dropped from 2% to 1.5%. The GDP price index emphasised the price pressures, ticking up to 3.1% while the core PCE price index rose to 3.7%. In contrast, the core PCE index advanced by 0.1% in June, the smallest rise in six months, with the year-on-year figure increasing at the slowest since early-2021, at 2.6%. The Fed’s Daly said the PCE report, the Fed’s preferred inflation metric, is further evidence that policy is working.   Elsewhere, China bond yields headed for record lows amid sluggish economic growth, anticipated interest rate reductions, and excess liquidity in the financial system caused by weak loan demand. Despite increased government borrowing for fiscal stimulus, investors remain attracted to these bonds. The People’s Bank of China is pushing back against the ongoing bond rally, considering selling its holdings to cool the market. This comes amid persistent economic challenges, with recent data showing continued factory contraction and declining home sales. Meanwhile, attention turns to the upcoming Third Plenum, where details of fiscal and tax reforms may be unveiled, following hints from Chinese leaders at a December economic meeting.

Epic Investment Partner’s Key risks & Disclaimers:

EPIC Global Equity Fund (the “Fund”) is a sub-fund of EPIC Funds p.l.c. (the “Company”), which is an open-ended umbrella fund authorised in Ireland as a UCITS fund and regulated by the Central Bank of Ireland. This marketing material has been approved in the UK by EPIC Markets (UK) LLP, trading as EPIC Investment Partners, which is a limited liability partnership incorporated and registered in England and Wales under partnership OC306260 with its registered office at Audrey House, 16-20 Ely Place, London EC1N 6SN. EPIC Markets (UK) LLP is regulated by the Financial Conduct Authority. Distribution of this material and the offer of the Fund are specifically restricted in certain jurisdictions. In particular, but without limitation, neither this material nor shares in the Fund are available to US persons.

This document is for general information purposes only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. It is not a personal recommendation and it should not be regarded as a solicitation or an offer to buy or sell any shares in the Fund. This document represents the views of EPIC Investment Partners at the time of writing. It should not be construed as investment advice. Any person interested in investing in the Fund should conduct their own investigation and analysis of the Fund and should consult their own professional tax, accounting or other advisers as to the risks involved in making such an investment. Full details of the Fund’s investment objectives, investment policy and risks are set out in the Fund’s Prospectus and Supplement which, together with the Key Information Document (“KID”), are available on request and free of charge from Maples Fund Services (Ireland) Limited, 32 Molesworth Street, Dublin 2, Ireland and, in the UK, from EPIC Markets (UK) LLP, Audrey House, 16-20 Ely Place, London EC1N 6SN. Any offering of the Fund is only made on the terms of the current Prospectus, Supplement and KID. A subscription in the Fund can only be made after the provision of the KIID and should be made solely upon the information contained in the Prospectus, Supplement and KID.

An investment in the Fund is not suitable for an investor who cannot sustain a loss on their investment. There is no guarantee of the Fund’s future performance and past performance is not a reliable indicator of future performance. The value of your investment and the income derived from it can go down as well as up, and you may not get back the money you invested. The risks associated with making an investment in the Fund are described in the Prospectus and Supplement but investors should note, in particular, the following: 1) Foreign currency denominated investments are subject to fluctuations in exchange rates that could have a positive or an adverse effect on an investor’s returns. There is also a risk that currency hedging transactions for one share class may in extreme cases adversely affect the net asset value of the other share classes within the same sub-fund since there is no legal segregation between share classes; 2) The Fund is subject to the risk of the insolvency of its counterparties; and 3) Emerging market securities are subject to greater social, political, regulatory, and currency risks than developed market securities. This may impact the liquidity and value of such securities and, consequently, the value of the Fund.

MeDirect Disclaimers:

This information has been accurately reproduced, as received from EPIC Investment Partners. No information has been omitted which would render the reproduced information inaccurate or misleading. This information is being distributed by MeDirect Bank (Malta) plc to its customers. The information contained in this document is for general information purposes only and is not intended to provide legal or other professional advice nor does it commit MeDirect Bank (Malta) plc to any obligation whatsoever. The information available in this document is not intended to be a suggestion, recommendation or solicitation to buy, hold or sell, any securities and is not guaranteed as to accuracy or completeness.

The financial instruments discussed in the document may not be suitable for all investors and investors must make their own informed decisions and seek their own advice regarding the appropriateness of investing in financial instruments or implementing strategies discussed herein.

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This week’s key events include China’s Third Plenum, the ECB rate decision, US bank earnings, and several significant economic data releases from the US, Eurozone, and UK.. Last week, Fed Chair Powell highlighted progress on inflation but emphasised caution in rate cuts, while China’s economic recovery showed signs of weakness with lower-than-expected inflation and GDP growth.

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