US equities suffer biggest weekly decline since January after May’s steeper than expected inflation data
US equities posted their biggest weekly declines since January, ending lower last Friday. The S&P 500 was down 5.05% and the Nasdaq down 5.60% for the week.
This was after U.S. consumer prices in May showed a steeper-than-expected rise, fuelling fears of more aggressive interest rate hikes by the Federal Reserve.
CPI surges 8.6% year-on-year, the largest gain since 1981
Data from the U.S. Labour Department's report showed the consumer price index (CPI) increased 1.0% last month after gaining 0.3% in April. Year-on-year, CPI surged 8.6% - its biggest gain since 1981 and following an 8.3% jump in May.
Following the inflation report, two-year Treasury yields spiked to 3.05% (the highest since June 2008), while benchmark 10-year yields reached 3.18% (the highest since May 9)
Losses in the S&P 500 was driven by Tech and growth stocks, whose valuations rely more heavily on future cash flows, with Microsoft Corp, Amazon.com and Apple Inc leading the decline. Netflix Inc also slid 5.1% on the day after Goldman downgraded the streaming video giant's stock to "sell".
ECB signals rates lift-off upon broadening rise in inflation
European equities declined after the European Central Bank (ECB) signalled a higher interest rate hike in September as it raised its inflation forecast and cut economic growth expectations for the year. The STOXX 600 index was down 3.95% for the week.
With inflation at a record-high 8.1% and still rising, the ECB now fears that broadening price growth could transit into a hard-to-break wage-price spiral, heralding a new era of stubbornly higher prices.
The central bank for the 19 countries that use the euro said it would end quantitative easing on July 1, then raise interest rates by 25 basis points on July 21. It will then hike again on Sept. 8 and go for a bigger move, unless the inflation outlook improves in the meantime.
On the moves signalled on Thursday, ECB President Christine Lagarde told a news conference that this was a step in a long journey, saying that the central bank “will make sure that inflation returns to our 2% target over the medium term."
Chinese equities were lifted by the easing of lockdowns and regulatory crackdowns
Over in Asia, cautious hopes of regulatory easing on tech firms lifted China's equities. Chinese equities posted robust weekly gains, supported by easing (tech/platform) regulatory and lockdown concerns as well as policymakers’ further pledge, including Vice Premier Liu He support for the economy.
The broad-based representation of Chinese equities was up 6.13% for the week while Hong Kong equities represented by the Hang Seng Index ended the week 3.43% higher. Overall, Asia equities represented by the MSCI Asia ex Japan index was supported by the performance of Chinese equities and was marginally up 0.51% for the week.
End to Didi probe another sign of easing crackdown
More explicit signs that the regulatory crackdowns are easing came earlier in the week with reports of Chinese regulators concluding probes into ridehailing giant Didi Global Inc and two other firms and are preparing to allow their apps back on domestic app stores.
In recent months, China has changed its tone towards the regulatory crackdown campaigns it waged against a wide range of industries from technology to property since late 2020, as it seeks to boost an economy hurt by COVID-19 lockdowns.
China’s May export activity rebounded strongly while CPI inflation remained constant
China’s export activity showed a stronger than expected rebound in May, with exports rising 16.9% yoy, after a 3.9% gain in April and import growth picked up to 4.1% from April’s flat reading.
Headline CPI inflation held steady at 2.1% yoy, as subdued core inflation was unchanged at 0.9% yoy.
Reserve Bank of India hiked interest rates by 50 bps
Indian equities represented by the Sensex index ended the week 2.63% lower, amid inflation worries and after the central bank hiked its policy repo rate by 50 bps to fight inflation.
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Disclaimer: Market update provided by iFast