It was a very bearish trading week for U.S. and European stocks as mounting worries about rampant inflation and monetary tightening triggered a sell-off. U.S. inflation data disappointed investors who had been looking for price increases to slow and stoked concerns about global growth. Investors now have no illusions that central banks now care more about fighting inflation than propping up financial markets while aggressive rate hikes are likely to take a sharp bite out of household consumption. Adding to woes, both the OECD and World Bank cut their growth forecasts for this year, citing risks from persistent inflationary pressure.
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Canadian stocks plunged sharply with the benchmark S&P/TSX Composite Index returning -2.48%.
On the economic data front, the Canadian economy added a net 39,800 jobs in May, above market expectations of 30,000. The unemployment rate in the country fell to 5.1% in May from 5.2% in April, data from Statistics Canada showed.
Major US stock indices posted their biggest weekly percentage declines since January following the release of hotter-than-expected consumer price index (CPI) data for May. The S&P 500 and the NASDAQ post the ninth negative weekly result out of the past ten. Surging energy and food prices were key drivers of inflation to an annual rate of 8.6%, the highest since December 1981. The hot inflation numbers have sparked heightened concerns about a recession and keep pressure on the Federal Reserve (Fed) to raise rates aggressively starting at next week’s meeting. The University of Michigan’s preliminary June sentiment index fell to a record low 50.2, from 58.4 in May. “Throughout the survey, consumers signaled strong concerns that inflation will continue to erode their incomes, and the factors they cited are unlikely to abate soon,” Joanne Hsu, director of the survey, said in a statement.
In Brazil, stocks the BOVESPA index sank 5%. May IPCA inflation came in lower than expected (0.47% versus 0.6% consensus).The percentage of income earners in the total population of the country decreased from 61% in 2020 to 59.8% in 2021, the same percentage as in 2012 and also the lowest in the historical series, according to the Brazilian Institute of Geography and Statistics (IBGE). Brazil gave up its controlling stake in Eletrobas. The stock offering for Latin America’s biggest power company on Thursday raised $6.9 billion, becoming the world’s second-largest equity deal of 2022.
In Chile, stocks as measured by the IPSA index returned -2.14%. The Central Bank of Chile hiked its benchmark interest rate by 75bps to 9% on Tuesday, in line with market expectations and following a 125bps increase in the previous meeting to to rein in rising inflation.
Japanese stocks registered moderate gains for the week supported by the Cabinet Office data showing that the economy shrank an annualized real 0.5% in the January-March period, less than the initial estimate of a 1.0% contraction. The yen’s weakness which has been ploughing 20-year lows against the dollar, continued to provide a boost to Japan’s exporters. The Japanese government and the central bank, in a rare joint statement voiced concerns about rapid yen weakening. The statement came as Japanese policymakers continue to lag behind other major central banks in exiting stimulus policy. Non-domestic inflows from investors looking to capitalise on the weak yen and find bargains provided a further boost to stocks.
Chinese equities rallied amid signs that Beijing is easing its regulatory clampdown on internet stocks
media outlets reported that authorities are in talks about reviving the initial public offering for Jack Ma’s Ant Group, a hugely positive sign for China’s business sector. In a further sign of policy relaxation, another 60 new online games were granted publishing licenses by China’s gaming regulator.
The regulator is also reportedly to conclude a yearlong probe into DiDi Global and restore the ride-hailing giant’s mobile apps back on domestic app stores. In economic readings, China’s May exports jumped 16.9% from a year earlier, the fastest growth since January this year, and more than double analysts’ expectations for a 8.0% rise. Imports rose 4.1% in May from a year earlier, the first gain in three months. Factory gate inflation slowed while consumer prices rose at steady pace in May.
Australian stocks were hit hard. The benchmark ASX200 shrunk by 4.24%. The Reserve Bank of Australia lifted the official cash rate to 0.85%, an increase of 50 basis points or half a percentage point.
This was the first back-to-back rate hike in 12 years, as the board said huge monetary support is no longer needed amid the strength of the economy and the current inflation pressures. . The interest rate sensitive finance and real estate sectors took the biggest hammering after the RBA’s shock rate rise.
European stocks were under pressure It was the 17th week in a row of outflows for European equities in the week to Wednesday, according to BofA, with $2.1 billion leaving the space. The European Central Bank lowered its outlook for economic growth, raised its projection for inflation and announced it intended to end net purchases of bonds under its asset-buying program on July 1 even though not all the sums allocated have been used. ECB President Christine Lagarde also said benchmark rates would be raised in the coming months.
In Poland, the WIG20 sank 5.21%. Poland’s central bank hiked its main interest rate to the highest level since 2008 on Wednesday, raising the cost of credit by 75 basis points to 6.00% as it fights levels of inflation unseen in almost a quarter of a century. Inflation in Poland was 13.9% in May according to a flash estimate from the statistics office, well above the central bank’s target range of 1.5%-3.5%.
In Hungary, stocks fell sharply amid expectations that the central bank will need to continue raising interest rates to control rising inflation. During the week, the government reported that the annual inflation rate in Hungary accelerated to 10.7% in May, surpassing market expectations of 10.5%. It was the highest inflation rate since May of 2001 and well above the central bank’s target ceiling of 4%.
REST OF EUROPE
In the UK, London’s premier FTSE 100 Index slid 2.86%. The Bank of England said on Friday that is satisfied lenders have taken steps to ensure they are no longer “too big to fail” in any future crisis, though it did find shortcomings at Lloyds, Standard Chartered and HSBC.
The Switzerland stock market was sharply lower, in line with markets across Europe. The SMI plunged 3.86%.
In Russia, stocks as measured by the RTS Index returned 5.78%. The Russian central bank cut its key interest rate by 150bps to 9.5%, bringing borrowing costs back to levels prior to the Ukraine conflict, and compared to market forecasts of a 100bps drop.
(Note: Trading between 06-09/06/2022)
Trading in the Tel Aviv Stock Exchange (TASE) in the first and shortened week in June was marked by price decreases in most of the leading share indices. The TA-35 index decreased by 0.8% bringing year-to-date cumulative losses to 4.6%. The first week of trading in June was a shortened week, due to the Shavuot (Pentecost) Festival vacation on Sunday, June 5, 2022. This is according to the information contained in the weekly stock market report, released by the TASE.
In Nigeria, the stock market maintained its bullish performance during the week. The benchmark All Share Index gained 0.55% from 52,908.24 points recorded as of the end of last week to close the week at 53,201.38 index points, while the market capitalization followed suit to close at N28.68 trillion. This brings the month-to-date performance of the local market to +0.40% and a year-to-date gain of 24.55%.
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Kyriaki Balkoudi is a markets editor for World Markets Daily. She holds a bachelor’s degree in Balkans Studies from Aristotle University of Thessaloniki, Greece and a master’s degree in International Politics from City University London, UK.
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