Global equity markets fell and the US dollar increased due to central banks tightening policies to control inflation.
During the week, several major global indices experienced a decline in value. The MSCI All Country World index saw a decrease of 2.2%, while the S&P 500 index fell by 1.4% and the Nasdaq 100 index dropped by 1.3%. The German DAX 40 also experienced a significant drop, falling by 3.2%, while the UK FTSE 100 decreased by 2.4%. Similarly, Asian markets were also affected, with the Hang Seng index plunging by 5.7%, and Japan’s Nikkei 225 experiencing a drop of 2.7%. Additionally, risk-sensitive currencies such as the Australian dollar and the New Zealand dollar saw significant decreases over the same period, with declines of 2.9% and 1.5% respectively.
Past week market performance
In this study, the Bloomberg Global Aggregate Total Return Index UnhedgedUSD is utilized as a representation for Global Bonds. The BBG Commodity Total Return serves as the proxy for Commodities, while HFRX Global Hedge Fund Index stands in as a proxy for Hedge Funds. It is important to note that these proxies were chosen based on their suitability for the research objectives.
The Bank of England, contrary to expectations of a 25-basis-point move, unexpectedly raised interest rates by 50 basis points. Similarly, Norway’s central bank also hiked interest rates by 50 basis points and anticipates another hike in August. The Swiss National Bank increased its policy rate by 25 basis points the previous week. In the weeks prior, the European Central Bank raised interest rates and signaled the possibility of additional hikes, while both the Bank of Canada and Reserve Bank of Australia also surprisingly raised interest rates earlier this month.
In the current month, the US Federal Reserve deviated from the norm and opted not to adjust interest rates. Nevertheless, Fed chair Powell recently reaffirmed the central bank’s stance on monetary policy by indicating that additional rate hikes may be necessary. He emphasized that any future adjustments to interest rates would be done cautiously. Powell further explained that the decision to maintain current rates was intended to ease the pace at which borrowing costs were being increased.
The recent increase in hawkishness by central banks worldwide is occurring despite the fact that inflation, although moderated, remains above their targeted levels. Although the global economy has displayed resilience thus far, there is a growing apprehension that further aggressive tightening measures could potentially lead to a recession.
The upcoming week will feature several key events in the financial realm. On Monday, Germany’s Ifo Business Climate and the ECB Forum on Central Banking will take place over three days. Tuesday will bring a variety of events, including a speech from ECB President Lagarde, Canada’s May inflation data, US durable goods orders for May, and US consumer confidence for June. On Wednesday, there will be Germany’s GfK Consumer Confidence for July and speeches from both ECB President Lagarde and Fed Chair Powell. Thursday’s events include Australia’s May retail sales data, Euro area consumer confidence figures, Germany’s June inflation data, US Q1 GDP results and a speech from Fed Chair Powell. Finally, Friday will feature China NBS manufacturing PMI numbers, UK Q1 GDP data, Germany’s May retail sales statistics, Euro area inflation figures for June and US PCE price index data.
- The Euro’s future trajectory appears uncertain as the EUR/USD pair deviates from its previously bullish path, following its failure to maintain a position above 1.1000 and subsequent descent below the 1.0900 threshold. This decline has further precipitated a challenge to a crucial trendline support, leaving it open to speculation whether or not the bears will be able to reverse this trend.
- Despite the Bank of England’s decision to increase rates by 50 basis points, the British Pound has experienced a considerable decline throughout the week. This occurrence may be attributed to concerns regarding a potential economic recession, which are currently haunting the currency.
- Last week, the Australian Dollar experienced a decline due to the US Dollar’s resurgence in strength amidst the Federal Reserve’s indication of an increase in interest rates. The Australian bond market also forecasted uncertainty ahead, leading to a possible decrease in AUD/USD exchange rate.
- The Japanese Yen is likely to face further difficulties as it enters a week filled with US data, with the Federal Reserve and the Bank of Japan appearing to diverge once again.
- The upcoming week may see the US dollar maintaining its current range, as it awaits cues from the PCE price index data that is set to be released on Friday. The market’s perception of the Fed’s ability to increase rates twice more this year may be influenced by this inflation gauge, which is considered to be the preferred measure of inflation by the Fed.
- During a two-day testimony before congress, Fed Chair Jerome Powell reaffirmed the hawkish stance of the Federal Reserve on interest rates. As a result, the S&P 500 and Nasdaq indexes were able to regain market favor. This event marked a significant turning point as investors finally began to heed the Fed’s message.
- The gold market exhibited a bearish breakout in the weekly forecast, but the potential for such a trend to continue may be constrained due to growing concerns of an impending recession. On Friday, there was a slight rebound in the market as fears of economic downturn resurfaced. The question remains whether the current decline is a precursor to an eventual bullish rally.
- The weekly forecast for US crude oil indicates that prices are expected to encounter difficulty due to the presence of uncertain demand and increasing rates. The energy markets continue to confront a problematic combination of an abundance of supply and a decrease in demand.