United States
Stocks gave up some of the previous week’s strong gains this week as investors remained sceptical that the Federal Reserve will be able to control inflation without triggering a recession. Boeing’s rise aided industrial stocks, while consumer discretionary stocks performed well, aided by Amazon’s gains and increased resilience. Amazon shares rose on Tuesday after shareholders approved the 20-for-1 stock split announced in March, allowing the share price to trade at a fraction of its previous level.
Volatility was also present, as evidenced by various comments by JP Morgan CEO Jamie Dimon that the world is rapidly approaching economic unrest because of an ongoing rise in the price of commodities, interest rates within the U.S. and the global economy itself. Tesla, one of the most prominent companies in the tech sector, has decided to lay off 10% of its workforce because its CEO, Elon Musk, is concerned about the state of the economy. These remarks appeared to have some impact on markets as investors became more concerned.
The Labor Department reported on Friday that employers added 390,000 non-farm jobs in May, far surpassing consensus expectations of around 320,000. The prior day’s weekly jobless claims surprised on the downside, while April job openings remained slightly below record highs at 11.4 million. Nonetheless, the Conference Board’s consumer confidence index fell in May as workers became less optimistic about their job prospects, with slightly more Americans saying that jobs were “hard to come by.”
Inflation was hard to comment on as the federal reserve was a bit unsure on how interest rate increases were to move. There has been speculation that interest rate increases would be stopped in September as the Federal Reserve would want to see their impact on the economy. The Conference Board report showed that Americans’ inflation expectations were moderating, and the Labor Department payrolls report brought reassuring news to investors worried about wage pressures, with average hourly earnings rising less than consensus estimates in April (0.3% versus 0.4%).
U.S. Treasury yields increased substantially during the week, with the benchmark 10-year U.S. Treasury note yield rising from 2.74% the previous Friday to roughly 2.96%. Investment-grade corporate bonds traded lower as U.S. Treasury yields increased amid continued long term inflation and growth concerns.
The EU/UK
The UK celebrated the Queen’s 70th Jubilee last week and therefore the working week was cut short due to the festivities. Last week represented a tough market for the Pound Sterling as investors punished the currency due to a poor economic outlook in the UK leading to short positions in the Pound against the Euro and US Dollar being taken up by investors.
There have been many concerns with investors with regards to the increase in the cost of living within Europe. Continuous struggles with elevated inflation, slowing economic growth alongside contractionary monetary policies muted by the European Central Bank (ECB), and the invasion of Ukraine are the underlying factors. The pan-European STOXX Europe 600 Index ended the week 0.87% lower. Major indexes were generally weaker with Germany’s DAX Index little changed, France’s CAC 40 fell 0.47%, and Italy’s FTSE MIB lost 1.91%.
Leaders of the European Union (EU) agreed at the end of the month to ban all seaborne Russian oil deliveries, accounting for roughly two-thirds of such imports, within months. Hungary, Croatia, Slovakia, and the Czech Republic were temporarily exempted from the embargo because they rely heavily on Russian energy delivered via pipelines. Part of the agreement also includes a coordinated ban with the UK on insuring ships carrying Russian oil. The EU also placed a EUR 300 billion plan to end the region’s dependence on Russian oil by the year 2030. Inflation in the 19 countries comprising the euro area accelerated more than expected in May to another record high of 8.1% and spread more broadly across the economy, the Eurostat data agency reported.
japan
After a two-year ban on foreign tourism due to the coronavirus pandemic, Japanese authorities took additional steps toward reopening the country’s borders. The daily cap on visitor arrivals was raised to 20,000 from 10,000 on June 1. Tourists can enter Japan beginning June 10, but only under certain conditions. Individual tourists will still be prohibited, but packaged tours with guides and fixed itineraries will be permitted. Prime Minister Fumio Kishida stated that the resumption of inbound tourism is significant because it allows the benefits of the weak yen to be felt as a devalued Yen gives foreign visitors more purchasing power hence more spending.
Japan’s stock market returns were positive for the week, with the Nikkei 225 Index gaining 3.66% and the broader TOPIX index up 2.43%. The yield on the 10-year Japanese government bond finished the week broadly unchanged at 0.23%, while the yen weakened to around JPY 129.88 against the U.S. dollar, The 10-year Japanese government bond yielded from about JPY 127.10 at the end of the previous week.
While short-term inflation expectations in Japan have risen and rising prices for daily necessities, according to Bank of Japan (BoJ) Governor Haruhiko Kuroda medium-term inflation expectations remain low. Despite the core, consumer price index (CPI) rising 2.1 % year on year in April, BoJ Deputy Governor Masazumi Wakatabe stated that the central bank does not believe it has achieved its price stability target of 2.0 % in a sustainable and stable manner. The annual rate of increase in the CPI is expected to slow as the positive contribution of rising energy prices fades. Wakatabe stated that the Bank of Japan must maintain monetary easing indefinitely and not rule out further easing measures.
China
In a holiday-shortened week, Chinese stocks rose after Beijing unveiled support measures to cushion an economic slowdown caused by the country’s zero-tolerance approach to the coronavirus. The broad, capitalisation-weight Shanghai Composite Index rose roughly 2.1 % for the week ended Thursday, while the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, rose 2.2 %. For the Dragon Boat Festival, China’s stock and bond markets were closed on Friday.
China’s government published additional details on the stimulus programmes it announced the previous week, totalling 33 measures spanning fiscal, financial, investment, and industrial policies. Demand for Chinese bonds, which had already been weakened by rising US Treasury yields, suffered a further setback amid reports that the government intends to speed up the issuance of local government special bonds to fund various projects.
Activity in China shrunk less sharply in May as restrictions within the country eased and production resumed. The purchasing manager’s index rose to a stronger than expected 48.1% as opposed to 46 in April which was indicated as its lowest ever over the past 26months. The year-on-year sales decline in May was 59.4%, slightly worse than the 58.4 % drop in April, but sales for the top 100 developers increased 5.6 % month on month. Separately, property data provider CRIC reported that property sales in 30 major cities measured by gross floor area increased by 4% month on month.
Stocks last week
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|
Weekly Index |
|
YTD Index |
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Index |
Local Currency |
Sterling Pound |
Local Currency |
Sterling Pound |
|
|
UK |
|
|
|
|
|
|
FTSE 100 Index |
-0.57% |
-0.57% |
3.92% |
3.92% |
|
|
US |
|
|
|
|
|
|
S&P 500 Index |
-1.17% |
-0.44% |
-13.40% |
-6.33% |
|
|
Europe |
|
|
|
|
|
|
Euro Stoxx 50 |
-0.32% |
0.31% |
-9.91% |
-8.33% |
|
|
Asia |
|
|
|
|
|
|
Nikkei 225 Index |
3.66% |
1.55% |
-3.58% |
-8.45% |
|
|
Hang Seng Index |
2.07% |
2.70% |
-8.92% |
-2.27% |
|
|
MSCI Emerging Markets Index |
1.65% |
2.52% |
-10.73% |
-6.02% |
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