Risk assets suffered a week of sharp falls as recession fears continued to dominate sentiment. Investors worried about the impact of monetary tightening on global growth as the US Federal Reserve, the Bank of England and the Swiss central bank all raised rates. Sentiment was also doused by big macroeconomic data misses. Mercifully, a quieter week of economic releases lies ahead.
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The week marked the S&P 500’s worst week since March 2020, with the index having notched a decline of almost 6% and entering a bear market. The NASDAQ has been in a bear market since March 2022, while the Dow closed below 30,000 for the first time since January 2021. The Fed’s most aggressive rate hike since 1994 took its toll on stocks. Meanwhile, several reports indicated that the world’s largest economy might be more vulnerable to a slowdown than Fed chair Jerome Powell envisioned. The housing market sees the impact of rising mortgage rates- housing starts were 1.54 million (1.72m) and building permits were 1.69m (1.8m)- U.S. retail sales slipped 0.3% in May, factory production fell for the first time in four months, weekly jobless claims were 229,000 (218,000). The Philly Fed index came in at minus 3.3 (when it was seen at +5).
Asian markets were also lower. The Bank of Japan was the only outlier in a week where money prices rose around the world, keeping its policy of ultralow rates unchanged citing the potential for economic decline if it pushed rates higher. In China, stocks bucked the global trend as economic data were better with May industrial production up 0.7% vs. a 2.9% drop in April. Retail sales fell less than expected, down 6.7% YoY or better than the 11.1% plunge in April. In Australia, the market posted its biggest weekly loss in two years following a wipeout on Wall Street. The decline on Friday marked the first six-day slide on the ASX since February 2020, with this week’s 6.6 per cent drop being its worst since March 2020.
Equities in Europe fell sharply with the pan-European STOXX Europe 600 Index ending the week 4.60% lower. Switzerland’s national bank surprised markets by raising its interest rates by 50bp, the first such Swiss move in 15 years. The Bank of England raised its rates by a comparatively modest 25bp, the fifth rise in British rates since December. The European Central Bank (ECB) called an emergency meeting on Wednesday, after a jump in borrowing costs for more indebted eurozone states stoked fears of another eurozone debt crisis. Policymakers have now decided to direct staff to accelerate work on a new tool to contain spreads, while also stressing the flexibility that they have when it comes to the reinvestment of maturing securities.
Trading in the Tel Aviv Stock Exchange (TASE) in the second week in June was marked by price decreases in the leading share indices, similar to the trend in the leading stock exchanges worldwide. The TA-35 decreased by 5.9%. In Israel, annual inflation rose at a more moderate rate, reaching 4.1%, following which there are increased expectations of the raising of the interest rate by the Bank of Israel for the third time on July 4. In Nigeria, the stock market closed the week on a bearish note amidst sell-offs and buy-interests.
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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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