Stocks closed lower last week, with sentiment in western developed markets driven mostly by inflation and interest rates. Following the Eurozone’s rate hike, the UK raised rates to levels not seen since 2008. China’s economic growth forecasts for 2023 has fallen following poor post pandemic recovery, whilst the Japanese Yen continues to weaken. US economic data is suggesting that the rate hike may be pushing the country into recession.
Last week’s performance – major stock markets
| S&P 500 | -1.39% |
| Nikkei 225 | -2.74% |
| CSI 300 | -2.51% |
| Euro Stoxx 50 | -2.80% |
| FTSE 100 | -2.37% |
Commentary
US: Interest rate hike pushing the us into recession
Major benchmarks closed lower in a holiday shortened trading week. The Chair of the Federal Reserve stated that nearly all policymakers expect it to be appropriate to increase interest rates somewhat further this year, signs of further rate hikes seemed to weigh on sentiment for much of the week. Economic data released in the week suggested that the interest rate hike is pushing the US into recession. It showed that manufacturing activity had fallen to levels not seen since December, with suppliers cutting prices at their fastest rate since the start of the pandemic – perhaps in response to weak demand. Weekly jobless claims are once again, at their highest level in almost 2 years.
Japan: Weaker yen and stronger inflation
Japanese equities experienced a decline in performance this week, some of this decline was attributed to the profit taking following the market’s strong performance. The Yen weakened against the Dollar, almost reaching levels that prompted policymakers to intervene in the market to stop a further decline. Core inflation, which excludes volatile food and energy prices, rose more than expected in May and was above the Bank of Japan’s target of 2%. Manufacturing output appeared to fall as domestic and foreign demand muted. Service sector activity slowed but was still strong overall.
China: Slumped economic recovery
Chinese stocks retreated after a holiday shortened week. There is accumulating evidence that the country’s recovery is losing steam, raising concerns about the economic outlook. Economists at several major banks have lowered their 2023 growth forecasts for China, which is struggling with slowing export demand, a housing market slump and weak business and consumer confidence.
Europe: Looming negative economic data
Major stock indices in the region fell last week as fears of further interest rates may worsen the recession in the Eurozone. Data showed that private sector business activity had slowed significantly, with business output growing for the sixth month in June, however almost stalling. Producer prices in Germany rose at their slowest pace since July 2021, suggesting that inflation may be easing. Predictions suggested that the German economy would contract more largely than previously anticipated in 2023. Norway’s central bank rose interest rates to levels not seen since 2008 to curb inflation, they also stated that further hikes are likely.
UK: Bank of england hike rate
The Bank of England raised interest rates by half a percentage point to 5%, the highest level since 2008 due to stubbornly high inflation levels. Core inflation, which excludes volatile food and energy prices, appeared to accelerate to a 31 year high. Manufacturing activity lowered to worse than expected, with services activity expanding at a slower rate compared to previous figures. The sluggish private sector growth has put the risk of an economic downturn in the UK at the forefront of investors’ minds.
