World markets were mostly higher this week. All eyes were on the US Federal Open Market Committee (FOMC) meeting, which concluded with Fed policymakers announcing a widely expected 75-basis-point rate increase. Expectations that the US central bank may need to slow down the pace of its interest rate hikes, given the U.S. economy contracted for the second straight quarter in the three months ended June 30 boosted risk appetite. Investors are hoping that hawkish rate rises from central banks will ease, despite warnings record-high inflation will stick around and volatility will continue. The International Monetary Fund (IMF) lowered the global growth forecast to 3.2% in 2022 (3.6% in previous forecast) and to 2.9% in 2023 (3.6% in previous forecast).
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Stocks on Wall Street posted solid gains as the U.S. Federal Reserve enacted a 0.75% point rate hike on Wednesday and despite the US GDP report confirming that recession has arrived. GDP contracted at -0.9% in the second quarter of 2022. That followed a 1.6% contraction in the preceding three months, meaning that the world’s largest economy had met the technical definition of a recession of two consecutive quarters of contraction. The market seized on this downbeat news about the economy as a sign that the US central bank will now slow its pace of interest rate hikes, after hiking them by three-quarters of a percentage point. Fed Chair Jerome Powell offered little specific guidance about what to expect next during his news conference following Wednesday’s Fed meeting. In Mexico, equities were higher as GDP grew 1.9% year-on-year in the second quarter. In Chile, stocks also gained as Ecuador and Chile relaunched their commercial relationship with new agreements.
Asian stocks were mixed weighed down by fresh concerns over economic growth in China. The most recent data showed that the economy grew by only 0.4% in the second quarter, compared with a year earlier, while the IMF downgraded China’s growth to 3.3% in 2022, the lowest level in more than 40 years, and to 4.6% in 2023. The Communist Party’s top decision-making body, known as the Politburo, also gave a downbeat assessment of economic growth and gave no indication of new stimulus. In Japan, stocks eased as the Summary of Opinions at the BoJ’s July monetary policy meeting showed that policymakers debated the chance of a global economic slowdown, including a U.S. recession and world financial markets experiencing a negative shock. “As European and U.S. central banks tighten monetary policy, we must be vigilant to risks that could affect Japan’s economy including the chance of the U.S. economy falling into recession,” an opinion showed.
In Australia, the stock market rallied. The ASX200 returned 2.49% despite consumer price inflation reaching its highest level since 2001.The latest data from the Australian Bureau of Statistics showed that consumer price inflation accelerated to 6.1% in the second quarter from 5.1% in the first quarter on high dwelling and auto fuel prices.
European stocks gained ground, after official data showed eurozone growth holding up in the face of soaring inflation. Eurostat said the 19-country eurozone’s economy grew by 0.7% in the second quarter while inflation rose to a new record of 8.9% in July. The rise in headline inflation was driven by food and energy prices. Markets also largely shrugged off concerns about rising natural gas prices due to reduced Russian supply after Russia cut gas deliveries to Europe via the Nord Stream pipeline to about 20% of its capacity, citing the need for maintenance on another turbine. European Union (EU) energy ministers backed a voluntary 15% reduction in gas usage over the winter.
Only Hungary, which is heavily dependent on Russian energy exports, voted against the proposal because it goes against the country’s interests, according to its foreign minister, Péter Szijjártó. On Tuesday, the National Bank of Hungary, raised its benchmark base rate by 100 basis points, from 9.75% to 10.75% and signaled that it will continue to hike its interest rate until inflation has peeked. The move lifted borrowing costs to their highest since December of 2008. Meanwhile, the European Commission’s eurozone economic sentiment indicator plunged from 103.5 in June to 99 in July, now below its long-term average with forward-looking indicators pointing to an economic contraction in the second half of the year.
AFRICA/ MIDDLE EAST
In Israel, trading in the Tel Aviv Stock Exchange (TASE) in the fourth week in July (24-28/07/2022) was affected by the diplomatic tensions between Israel and Russia against the background of Russia’s announcement that it would stop the activities of the Jewish Agency in its country. The TA-35 index increased by 0.3% bringing year-to-date cumulative losses to 2.7%. This is according to the information contained in the weekly stock market report, released by the TASE. On the data front, the Bank of Israel announced that the Composite State of the Economy Index for June increased by 0.05% following a decrease of 0.1% in May, when foreign investors acquired US$ 620 million net in shares.
In Nigeria, the stock market closed bearish during the week (25-29/07/2022) as the All-Share index shrunk by 3.10% with the market capitalization following suit to close at N27.16 trillion. This brings the month-to-date performance of the Nigerian stock market to 2.79% and a year-to-date gain of 17.92%.
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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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