Markets took a breather this week, which came from the realisation that economies are slowing down, which should in turn help tame inflation and take the pressure of central banks applying the brakes too aggressively. Of course, there is still a lot of uncertainty around how much economies will slow down, the impact this would have on inflation and what central banks will do.

Last week’s performance – major stock markets

Commentary

US: Does a slowing economy take the pressure off the federal reserve?

There are signs that the economy is continuing to cool down which in turn is helping tame inflation. For example, existing home sales fell in May in the face of higher mortgage rates. National economic activity also fell, with both manufacturing and services appearing to be slowing down. As a result of this, it appears that manufacturers, whilst continuing to raise prices, the amount by which they are raising prices has come down somewhat.

Japan: Business activity rises, but global recession fears linger

Investor sentiment was supported by continued expectations that the Bank of Japan would keep its supportive policies, despite consumer prices continuing to rise and the yen continuing to weaken. Data showed a strong expansion in business activity in the services sector, which also boosted sentiment. However, the worry that the US would continue to increase interest rates aggressively and provoke a recession kept this positivity muted.

China: Economic support on the way?

President Xi Jinping pledged to roll out more measures to support the economy and minimize the impact of COVID-19. Experts have lowered their growth forecasts for China after the country’s zero-tolerance approach to the coronavirus led to widespread lockdowns that disrupted economic activity and global supply chains. To top things off, the challenges the China’s property markets have had over the last year, could pose an even great risk to is economy than the recent covid lockdowns.

Europe: Focus on economic growth, gas consumption and consumer confidence

There are now clear signs that the economy is slowing, which is raising questions on whether central banks could increase interest rates aggressively. Meanwhile, however, Norway’s central bank raised interest rates. Germany moved to the second “alarm stage” of its emergency plans to reduce gas consumption and increase storage inventories of the thermal fuel after Russia sharply reduced pipeline flows. Consumer confidence in the eurozone unexpectedly tumbled in June, likely reflecting the effects of soaring inflation.

UK: Inflation continues to soar

Inflation accelerated to a record 9.1% in May as food costs rose at the fastest rate in 13 years. Meanwhile, data is suggesting that the economy continues to cool down as businesses struggled with falling orders. Consumer confidence has fallen to its lowest level since records began nearly 50 years ago as surging inflation hits households’ finances and the wider economy. Consumers are reining in their spending, with the volume of retail sales falling 0.5% in May from April.