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Market Updates for the week ending 3 June 2022

Updated: Jun 16, 2022

US equities ended lower for the week; US 10 year yields at 2 week highs

US equities ended lower last Friday. The S&P 500 fell 1.2%, the Nasdaq 0.98% while the Dow lost 0.94%.

U.S. Treasury yields advanced to two-week highs with the benchmark 10-year notes up at 2.95%, while the two-year note was up at 2.66%.

Strong employment data keep the pressure on for Fed’s tightening path

The US Labour Department's employment report on Friday also showed the unemployment rate holding steady at 3.6% for a third straight month, even as more people entered the labour force.

Figures show that employment is now just 822,000 jobs below its pre-pandemic level as most industries with the exception of leisure and hospitality, manufacturing, healthcare, wholesale trade and local government education have recouped all the jobs lost during the pandemic.

The signs of labour market strength suggest that the Federal Reserve will keep on track on its monetary policy tightening path The Fed has increased its policy interest rate by 75 basis points since March.

It is expected to hike the overnight rate by 50bps at each of its next meetings in June this month and in July

European equities end week ~0.9% lower

Eurozone government bond yields rose as a greater than expected regional inflation data added to pressure on the ECB to tighten financial conditions by raising rates and ending asset purchases.

The benchmark 10-year German bond yields rose 27 bps to 1.23%, with equivalent Italian yields jumping 40 bps to 3.30%.

Eurozone CPI inflation rose to a record high in May, adding pressure on ECB tightening

Investors’ expectations of ECB rate hikes were also raised following strong inflation data last week. Eurozone, CPI inflation for May recorded an 8.1% year on year change, an increase from 7.5% year on year in April.

The inflation figures will put further pressure on an increasingly hawkish European Central Bank (ECB) to raise rates through 2022, with a 50 basis-point hike expected at one of the bank's policy meetings by October,

Asian equities ended the week higher

Asia equities ended the week mostly higher, as China’s easing of COVID-19 lockdowns improved the growth outlook for the region.

Economic data releases from the region were mixed but largely showed resilience, helped by economic reopening. Asian equities represented by the MSCI Asia Ex Japan Index ended the week higher at 2%.

China’s PMI readings gain relief in May amid some rollback of lockdown measures

China’s PMI readings rebounded in May but stayed in contractionary territory, below 50.

The Caixin services purchasing managers' index (PMI) rose to 41.4 in May from 36.2 in April, moving up slightly as authorities began to roll back some of the strict restrictions that have weighed on Chinese markets.

Chinese equities represented by the MSCI China index rose 3.2% for the week.

India's Manufacturing PMI remain strong in May despite inflation worries

Data in India showed the economy slowed less than expected in the March quarter, with the Manufacturing Purchasing Managers' Index coming in at 54.6 in May, slightly lower than April's 54.7 but above the 50-level separating growth from contraction for an eleventh month.

This has added to investor expectations for the RBI to keep its near-term policy focus on fighting inflation on rising crude oil prices. India’s Sensex index ended the week higher at 1.6%

Q1 corporate capital expenditure in Japan rises 3%, led by manufacturers

Japanese companies increased capital expenditure for a fourth straight quarter from January to March, underscoring the resilience of business investment led by manufacturers despite uncertainties over the COVID-19 pandemic and the war in Ukraine.

Data from the finance ministry last Wednesday showed capital expenditure in the year's first quarter rise 3.0% from the corresponding period last year, following an increase of 4.3% in the fourth quarter. Japan’s equity market represented by the Nikkei 225 rose 3.66% for the week.

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