World markets were stumbling thanks to a downturn in global investor sentiment in a week that offered a bit of everything for investors: from worries over growth as the latest economic data seemed to be faltering to Federal Reserve minutes to rising uncertainties around Covid. Risk aversion dented bullish sentiment on equity markets after a strong first half of the year. The week in seven words: A downbeat outlook for the world economy.
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In the U.S., the S&P 500, the NASDAQ, and the Dow all posted weekly gains in a holiday-shortened week. Markets were closed Monday in observance of Independence Day. Growth stocks extended their recent run of outperformance versus their value counterparts. The strength on Wall Street came as traders quickly shrugged off the concerns about the world economy that weighed on the markets and traders seemed optimistic the U.S. economy will continue to outperform as the Fed in no hurry to get monetary policy back to normal. Entering earnings season, Wall Street analysts are expecting the biggest quarterly earnings growth rate in a decade, according to FactSet.
In economic news, services ISM came in at a disappointing 60.1, or below the 63.5 expected, the IBD/TIPP Economic Optimism Index fell back to its lowest level since February. More positive, May job openings rose a bit less than expected but weekly jobless claims ticked higher. The minutes of the Fed’s mid-June FOMC meeting failed to provide conclusive evidence when a tapering schedule might be announced.
In Mexico, stocks fell for the week. The central bank published the minutes from its June 24 policy meeting, at which the bank’s five-member board decided by a majority to raise the benchmark interest rate by 25 basis points to 4.25%.
The bank’s monetary policy implementation will depend on the evolution of the factors that have an incidence on inflation, on its foreseen trajectories, and on its expectations, according to the majority of board members.
In Brazil, the central bank intervened in exchange rate on Thursday (July 8) after dollar hit R$5.30 first time since March. The monetary authority sold US$500 million in swaps and managed to bring down the price of the U.S. currency, which rises with global risk aversion and uncertainties in the Brazilian economy.
It was a volatile week for Asian markets as investors continued to grapple with Beijing’s continued crackdown on domestic tech companies and reports that the government will tighten oversight of U.S.-listed Chinese companies.
On Friday, China the People’s Bank of China said it would cut the reserve requirement ratio (RRR) for all banks by 50 basis points (bps), effective from July 15. The move came as the world’s second
largest economy reported June inflation statistics, which showed consumer-price inflation moved up 1.1% in June from a year earlier.
In a separate release by National Bureau of Statistics (NBS), producer price index (PPI), which measures the cost of goods at the factory gate, rose 8.8% in June year on year in line with economists’
Also, just after the markets closed, China reported that June’s credit expansion started to reaccelerate with new yuan loans reaching 2.1 trillion and aggregate financing—a measure of total credit issued—
going above 3.6 trillion
In Japan, markets registered sharp losses for the week as the government decided to place Tokyo under a fourth state of emergency, meaning that Olympic Games will be held without spectators in the
Services sector activity contracted in June with the au Jibun Bank Japan Services Purchasing Managers’ Index (PMI) standing at 48.0. Meanwhile, Bank of Japan (BoJ) Governor Haruhiko Kuroda reiterated
bank’s readiness to ease monetary policy further.
In Australia, the ASX 200 lost 0.93% on Friday, after two straight sessions of gains, shedding $35 billion, suffering its worst session in nearly three weeks. Tech stocks led the losses. The benchmark index dropped 0.4% for the week. Sentiment was dampened by tighten coronavirus restrictions across the Greater Sydney region which will slow the economic recovery.
Most European markets were down for the week. The European Central Bank (ECB) set its inflation target at 2% in a new policy review, abandoning the previous objective of “below, but close to, 2%.” ECB
President Christine Lagarde told a press conference that she doesn’t think that “by having this simple and solid 2 percent, we are actually pushing out the potential tightening that would take place.”
In economic news, UK GDP growth unexpectedly slowed to 0.8% between April and May, while industrial and manufacturing production reports came in softer than anticipated for May. In Germany, May’s industrial production fell 0.3% sequentially due to a drop in production of capital goods and energy.
The European Commission once again updated its growth forecasts after Europe’s economies enjoyed better-than-expected rebounds. The EU’s executive arm had projected in May a 4.3% GDP rate for the eurozone this year, followed by a 4.4% GDP rate in 2022. Now, the commission has revised its growth forecasts higher and is expecting a 4.8% growth rate this year, and 4.5% for 2022.
In South Eastern Europe, equities were mixed. In Romania, the central bank kept its benchmark interest rate at 1.25 percent this week as expected and once again choosing to wait before acting after the annual inflation rate increased to a 17-month high of 3.75 percent driven by power prices.
In Greece, the consumer price index was up 0.9 percent in June 2021 from May 2021, the Hellenic Statistical Authority (EL.STAT) announced on Friday.
In Cyprus, where the Stock Exchange hopes to privatise by the end of next year, the Securities and Exchange Commission is searching for new boss, as Demetra Kalogerou, the current chairperson is due to leave her post in September after ten years in office.
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