US equities down for the week as treasury bond yields rise
U.S. equities fell on Friday in a broad selloff led by large caps while U.S. bond yields rose. Large tech companies, Amazon.com, Apple and Microsoft declined and were the biggest drags on the major US indices. Overall, the S&P 500 Index fell 1.2% and the tech-heavy NASDAQ shed 2.6% U.S. Treasury yields rose, with the benchmark 10-year note at 2.97% and two-year yields ending the week at 3.2%.
Fed’s July meeting minutes: Upcoming rate hikes dependant on data
Investors have been weighing how aggressive the Federal Reserve (Fed) may need to be as it raises interest rates to battle inflation. Richmond Federal Reserve President Thomas Barkin said on Friday that U.S. central bank officials have "a lot of time still" before they decide how large an interest rate increase to approve at their Sept. 20-21 policy meeting.
Meeting minutes from the Fed’s 26-27 July policy meeting noted that the size of future policy tightening would be data-dependent and that officials would take a restrictive stance on rates at upcoming meetings due to the significant risk of higher inflation expectation’s being priced into markets.
The Fed has raised its benchmark overnight interest rate by 225 basis points since March to fight inflation at a four-decade-high. The focus may turn toward Fed Chair Jerome Powell's speech this week on the economic outlook at the annual global central bankers' conference in Jackson Hole, Wyoming.
European equities end the week lower on recession fears
European equities fell on Friday and as the highest-ever jump in German producer prices in July added to concerns over the economic outlook for the region's biggest economy, sparking fears of a recession. Last week, the Europe-wide STOXX 600 lost 0.8 per cent.
German July producer prices rise to high of 37.2% in July
German producer costs in July rose to their highest ever increases owing to rising energy prices from the Russian-Ukraine war. Germany’s annual producer inflation climbed to a new record high of 37.2 per cent in July. Energy prices as a whole jumped 105%, compared with July 2021.
Meanwhile, UK headline CPI inflation rose to 10.1% YoY in July despite commodity prices easing from their recent highs. The Bank of England now expects inflation to peak at roughly 13% YoY in October, with a gradual slowing through 2023.
Chinese equities decline for the week as July’s activity indicators disappoint
Chinese equities represented by the MSCI China Index ended the week lower at -1.3% against disappointing July activity data. Likewise, Hong Kong’s Hang Seng index declined 2% for the week as E-commerce giants Meituan slipped 0.7 per cent, while Alibaba Group Holding gained 1.4 per cent.
China’s July activity indicators slowed amid Covid-19 restrictions and an ongoing property sector downturn. Retail sales growth fell to 2.7% YoY following a 3.1% YoY rebound in June, likely due to payback from reopening demand, the expiry of some local consumption incentives and the ongoing drag from housing market weakness.
Industrial production held steady with year-on-year growth at 3.8%, but month-on-month growth slowed as strong power generation and auto production was offset by cooling momentum in other sectors, including consumer electronics.
Consumer prices surge as Japan’s July annual inflation rate hits 2.6%
Japanese equities advanced, helped by a weaker yen. The Nikkei 225 was up 1.25% with energy shares leading gains as oil prices rose overnight. Consumer prices increased for the 11th straight month in July mainly driven by surging food and energy prices, posting an annual inflation rate of 2.6 per cent, the steepest pace in eight years.
South Korea's finance ministry warned economic growth could slow on increasing downside risks for exports last Friday. The ministry cited continued inflation pressure globally, monetary tightening in major countries, the economic slowdown in the United States and China and the lengthening war in Ukraine as increasing downside risks. The KOSPI Index ended the week down at 1.4%.
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Disclaimer: Market update provided by iFast