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Market Update for Week Ending 1 July 2022

Photo by Samson on Unsplash

Major US equity indexes end 1st half of the year in negative territory

US equities ended lower last week, with the S&P 500 declining -2.2%, while the Nasdaq closed lower at -4.13%.

Last week’s decline sees US equities ending the first half of the year in negative territory with the S&P 500 registering its steepest first-half decline since 1970, while the Nasdaq had its largest-ever January-June percentage drop.

Treasury yields for both the two-year and 10-year yields declined as investors priced in the likelihood the Federal Reserve will force inflation down to near its target rate.

The two-year yield was at 2.83% while the yield on 10-year notes ended at 2.88%, falling the most since the pandemic hit markets in March 2020

U.S. May consumer spending rises moderately; inflation remains high

Economic data released on Thursday did little to alleviate fears. US Q1 GDP was revised down to 1.6% qoq from 1.5% qoq, in the final release due to downward revisions of services consumption growth.

U.S. consumer spending which accounts for more than two-thirds of U.S. economic activity, gained 0.2% in May, the smallest rise in five months.

The less expected than rise in consumer spending was attributed to spending on goods meant to last three years of more which declined 3.2%.

This includes purchases of furnishings, durable household equipment, recreational goods and vehicles. Inflation maintained its upward trend in May.

The personal consumption expenditures (PCE) price index rose 0.6% last month after gaining 0.2% in April.

In the 12 months through May, the PCE price index climbed 6.3%, driven by higher prices for goods and services.

Eurozone inflation record support case for bigger ECB rate hikes

European equities saw losses as fears of an economic slowdown and high inflation continued to weight on investor risk appetite. Energy security in the region also weighed on appetite with falling gas flows from Russia. Overall, the STOXX 600 was down 1.4%.

Euro zone inflation hit another record high in June as price pressures broadened, supporting the case for European Central Bank rate hikes starting this month.

At an ECB Forum last Wednesday, ECB, President Lagarde said that she didn’t think “we are going back to that environment of low inflation” that was present before the pandemic.

Consumer price growth in the 19 countries sharing the euro accelerated to 8.6% from 8.1%, higher than expectations of 8.4%, driven primarily by energy prices even as food and services made a marked contribution.

Inflation excluding food and fuel prices accelerated to 4.6% from 4.4%. Fuel prices rose by 41.9% in June while food costs increased by 11.1%

Chinese equities supported by relaxation of covid rules and positive manufacturing data

Asia equities represented by the MSCI Asia ex Japan fell 1.67% last week, amid ongoing investor concerns over the global economic outlook, inflation and policy tightening.

Bucking the regional trend, was the rally in onshore Chinese stocks amid investor optimism around the improved pandemic situation, relaxations of international and domestic travel, as well as uplifting data on the recovery of manufacturing activity.

The Shanghai Composite Index ended the week 1.13% higher while Hong Kong’s Hang Seng index also ended the week higher at 0.65%.

China's June factory activity expands at the fastest pace in 13 months

China's manufacturing activity expanded at its fastest in 13 months in June, buoyed by a strong rebound in output, as the lifting of COVID lockdowns sent factories racing to meet recovering demand.

The Caixin/Markit manufacturing purchasing managers' index (PMI) rose to 51.7 in June, also indicating the first expansion in four months, from 48.1 in the previous month.

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Disclaimer: Market update provided by iFast


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