Weekly Market Wrap 01/07/2022

The second quarter of the year drew to a close on Thursday, however the uncertainty that troubled markets in the opening months of 2022 is still very much present for investors. Most major developed markets have lost more than 10% since the beginning of the year, dragged lower by concerns around Russia’s invasion of Ukraine, an inconsistent global recovery from covid-19, inflation and recessionary risk brought upon by central banks raising interest rates too fast.  

This week, central bank leaders met in Sintra to discuss how to tackle inflation, the conclusion was that policy makers would need to act quickly to bring price levels down even if economic growth suffers as a result. Eurozone inflation data for June came in above expectations at a record high of 8.6% on Friday. China began to ease covid restrictions. The UK announced its worst current account deficit since records began, with declining exports appearing to be heavily impacted by post Brexit trade controls. US consumer confidence fell heavily in June, as the public’s expectations over the future of their personal finances was mainly driven by inflation. The fall in expectations can indicate an impeding reduction in spending and therefore growth. 

US Markets 

The S&P 500 is currently ending the week down 2.71% at 3,807 and the NASDAQ is down 4.77% at 11,531. The S&P 500 lost 20.6% in the first half of 2022, which was the largest decline in the first half of the year for the index since 1970. The beginning of Q3 did not get off to a much better start for US equities as markets feared that rising inflation could significantly impact companies that are reporting earnings in the next few weeks, which could push markets even lower. The US Supreme Court has added another controversial ruling to its list after the court ruled that the Environmental Protection Agency didn’t have authority to impose certain measures to reduce emissions on US states, this ruling has disrupted Joe Biden’s plans to tackle climate change within the US. 

UK Market   

The UK market returned to its downward trend this week, the negative news regarding the economy continued to flow with consumer borrowing increasing by less than expected and higher rates meaning that borrowing will likely stay low for an extended period. Bank of England Governor Andrew Bailey informed investors that the BoE would continue attempting to reduce rising prices but warned that UK inflation is now estimated to rise above 11% this year, pushed higher by the rise in the energy price cap.  

European Markets   

The Euro Stoxx 50 fell 1.23% to 3,447, the DAX was down 2.17% at 12,839 whilst the CAC 40 was down 1.78% to 5,965. CPI data for the Eurozone came in at 8.6%, above the economist consensus of 8.4%, with the largest contributors to price increases being energy and food costs. This latest reading places further pressure onto the ECB to act, in order to tackle rising prices, as the central bank has significantly lagged behind its peers in monetary policy. The ECB is expected to begin hiking interest rates in July, and today’s inflation data could open the door to discussion of a 50 basis point increase this month. 

Russia has retaliated to western nation’s sanctions by taking full control of Sakhalin-2, a gas and oil project based in Russia and backed by Shell and Mitsubishi. Russia took control by creating a new company that will take over full rights to Sakhalin and the government will decide if foreign shareholders are allowed to continue owning part of the project.  

Fixed Income  

Yields on the US 10-Year Treasury slipped to 2.97% despite central bank comments that higher rates should be expected to tackle inflation.  

Commodities 

Brent Crude fell by 1.53% this week to $111 per barrel, however prices are expected to remain above $100 for the foreseeable future as European countries search for alternatives to Russian oil and global inventories remain at limited levels.  

Gold also drifted lower this week, falling 0.90% to $1,785 as continued higher rates reduce the attractiveness of Gold as a non-income yielding asset. Copper has fallen to $7,980, the lowest price seen since early 2021 as investors feared that a slowdown in global economic growth will reduce the demand for metals.

The Week Ahead  

Monday – US Markets Closed 

Tuesday – RBA Interest Rate Decision 

Wednesday – FOMC Minutes, European Retail Sales 

Thursday – US Employment Change 

Friday – US Nonfarm Payrolls 

*Price changes as of last week’s close unless stated otherwise.