Weekly Comment: Celebrating Independence Day

6 minute read

Last week, there were arguably two ‘independence days.’ Saturday 4 July, when America celebrated the 250^th anniversary of the signing of the Declaration of Independence. And Wednesday 1 July 2026, when the newly installed Governor of the Federal Reserve (Fed), Kevin Warsh, declared his views on the institution’s independence. “We’ve been an independent central bank for a very long time, we’re going to be an independent central bank at this moment and you’re going to see no changes on that,” said Warsh at a central banker conference in Sintra, Portugal. Words that ought to soothe concerns that he would bend easily to the will of US President Donald Trump and deliver lower interest rates.

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Market overview

Of course, actions speak louder than words. Will Warsh and the Fed rate-setting committee he now chairs deliver hikes if needed? Time will tell. Or maybe Warsh is banking on the passage of time (and his tough talk) to negate the need to raise rates? After all, the oil price has fallen back to pre-Middle East conflict levels thanks to the memorandum of understanding signed between the warring parties back in June. The energy price shock triggered by the conflict has seen US inflation spike higher—the personal consumption expenditures (PCE) price index, a favourite inflation dataset of the Fed, was up 4.1% in May on a year-on-year basis, the highest it has been since April 2023. If a long-lasting peace follows and traffic in the Strait of Hormuz normalises, the energy shock should prove to be temporary, removing the need for hikes?

Softish data, for now

As well as the drop in oil prices, last week’s US economic data were helpful too, at least in terms of pushing any day of reckoning between Warsh and his employer further out into the future. The keenly watched non-farm payrolls showed the US economy added 57k jobs in June, around half of the 110k that had been expected. There were also downgrades to the previous two months’ numbers: May’s job additions were reduced to 129k from 172k; while April’s were cut to 148k from 179k. The numbers were enough to lower the chances of the Fed raising rates at the July meeting to around 18% from 29%, according to the CME FedWatch tool.

There were also other softish data releases. At 91.2, the Conference Board’s June consumer confidence reading fell short of expectations. Meanwhile, the Institute for Supply Management’s Purchasing Managers’ Index (PMI) fell 0.7 points to 53.3 in June. Even though that makes it six consecutive months of expansion (readings above 50 indicate expansion), the print was below the 53.9 that had been expected.

Will the trend be Warsh’s friend?

Economic data tends to be volatile at the best of times, but they have been particularly so recently, making it difficult for trends to assert themselves let alone be identified. That said, the latest releases do appear to have bought Warsh and the Fed some time. They also enabled stock markets to dial down interest rate hike concerns, helping US equities to post strong gains over the week, a fitting way to celebrate Independence Day, the one marking the signing of the Declaration of Independence 250 years ago that is.

Weekly market moves:

The MSCI All Country World Index (MSCI ACWI) added 2.0%, bringing the year-to-date (YTD) gain to 11.9%.

United States:

The main US stock benchmark may have marginally underperformed the global index, but it still managed to post a gain of 1.8% (+10.0% YTD) for what was an Independence Day shortened week. Mixed economic data saw the timing of any interest rate hikes pushed further out into the year, so no surprise rate-sensitive growth stocks fared the best, up 1.8% on the week (+2.8% YTD) compared to value’s 1.7% gain (+18.3% YTD) and small caps’ 0.4% loss (+21.5% YTD).

Tough talk from Warsh on central bank independence and inflation would have been bittersweet for US Treasuries. The good news, Warsh saying he will stand up for the Fed; less good news (in the short-term at least) was that the next move in interest rates is likely to be up. The yield on the 10-year Treasury rose 12 basis points to 4.49% (up 32 basis points YTD); the 2-year Treasury yield was up five basis points, to 4.14% (up 66 basis points YTD).

United Kingdom:

A quiet week on the economic front in the UK. Even if it had been a busy one, it is likely any data releases would have played second fiddle to domestic politics. With Andy Burnham still the only candidate to replace Sir Keir Starmer as prime minister, it looks like the leadership contest will be more like a coronation. So, it was all eyes on the former (is he now former?) Manchester mayor’s first major speech since launching his leadership bid. Plenty of promises around devolution and housing. Less on the tricky question of the public finances, although he did say he intends to stick to the existing fiscal rules, which reassured the market.

Despite the political uncertainty, London’s stock markets ended the week higher. Large caps were up 1.6% (+9.5% YTD), while mid-caps outperformed after rising 1.8% (+6.7% YTD). Sterling strengthened against the US dollar to US$1.34 compared to US$1.32 previously. The yield on the 10-year UK gilt, however, ticked five basis points higher to 4.78% (up 31 basis points YTD).

Europe ex UK

European stock markets were among last week’s winners—the MSCI Europe ex-UK Index added 2.7% (+12.8% YTD). Sentiment is likely to have benefited from a fall in eurozone inflation to 2.8% in June compared to May’s 3.2% and market expectations of 3%. The price growth slowdown may mean interest rates won’t have to be raised too aggressively to stem inflation after the European Central Bank hiked rates in June. At the national level, Germany’s main market gained 4.5% (+5.3% YTD), France’s 1.6% (+7.1% YTD), Italy’s 3.0% (+20.8% YTD), and Switzerland’s 1.8% (+11.9% YTD). The euro was unmoved at US$1.14. German bunds didn’t join in on the party though with the yield on the 10-year ending eight basis points higher at 2.93% (up eight basis points YTD).

Important information

This material is a marketing communication provided for information purposes only and does not constitute independent investment research. References to financial instruments are for general information purposes and are not subject to requirements applicable to independent investment research.

Any references to securities or financial instruments should not be regarded as a personal recommendation, or as an offer, solicitation or invitation to buy or sell any financial instruments. The views expressed are those of the authors at the time of publication and are subject to change. Past performance is not a reliable indicator of future results.

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