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Market Update for Week Ending 17 August 2022

Updated: Aug 22, 2022

Photo by Samson on Unsplash

US equities boosted by slower than expected rise in July CPI data

US equities registered positive gains last week after economic data showed a slower-than-expected rise in the consumer price index, raising hopes that the Fed would tighten policy less aggressively. For the week ending last Friday the S&P 500 Index was up 3.3% while the NASDAQ rallied 3.1%. Despite the lower-than-expected US CPI inflation figures for July, US Treasuries were little changed over the week as two-year yields ended the lower at 3.25% while 10-year yields moved higher to 2.84%.

U.S. consumer prices decelerated more than expected due to drop in gasoline prices

Market sentiment has been lifted by the July’s Consumer Price index data last Wednesday that showed a slowdown in consumer prices due to a sharp drop in the cost of gasoline. (The price of gasoline fell 7.7% in July).

In the 12 months through July, the CPI increased by a weaker-than-expected 8.5% following a 9.1% rise in June. The Consumer Price Index (CPI) was flat last month after advancing 1.3% in June.

July’s headline CPI inflation was 0.0% mom in July, compared to the expected 0.2% mom. The reading was the largest month-on-month deceleration of price increases since 1973.

The recent data has tempered investor’s expectations of the scale of the Federal Reserve's interest rate raising cycle as falling oil prices helped to cool inflation, with CME Group's FedWatch tool showing a modestly higher likelihood that the central bank will raise its policy rate by 50 basis points next month.

UK Q2 GDP declines amid soft service sector activity

UK GDP declined 0.1% qoq in Q2 2022 amid soft service-sector activity. The Office for National Statistics said gross domestic product (GDP) fell by 0.6% in June, the biggest contraction since January 2021 but less severe than the 1.3% drop predicted by a Reuters poll of economists. The UK is likely to avoid a technical recession in Q3 owing to some fiscal easing and the effect of an additional bank holiday in Q2.

Hong Kong’s Q2 GDP shrinks 1.3%

Hong Kong's economy contracted 1.3% in the second quarter from the same period a year earlier, government data showed on Friday, following a weak performance in external trade during the period. It was the second straight quarter of year-on-year contraction for the Asian financial hub's gross domestic product (GDP). The Hang Seng Index was marginally flat at -0.1% for the week.

China’s headline CPI inflation rose to 2.7% yoy in July

China’s consumer price index (CPI) increased 2.7% from a year earlier, the fastest pace since July 2020, led by rising food prices, especially soaring pork prices on tighter supply. The government has set an annual consumer inflation target of about 3%, while Premier Li Keqiang said last month China would be able to keep the 2022 price rise under 3.5%, highlighting the need to stabilise prices and employment. Chinese equities represented by the MSCI China Index was flat at -0.3%.

India's July consumer inflation eases to 6.71%

India's consumer inflation dipped to 6.71% in July, easing for the third month in a row, helped by a slower increase in food and fuel prices and adding to expectations that the central bank may rein in the pace of its policy rate hikes next month. Indian equities represented by the Sensex index was up 1.84% for the week.

Japan July core CPI seen rising 2.4%

Japan’s Core Consumer price index (CPI) for July likely rose 2.4% from a year earlier, accelerating to the fastest pace in nearly eight years and topping the central bank's 2% inflation target for a fourth month, according to a Reuters poll last Friday. Japan’s Nikkei 225 was up 1.84% for the week.

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Disclaimer: Market update provided by iFast



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