GLOBAL MARKETS

Risk assets rally amid a backdrop of high inflation and slowing economic growth

Despite little change in underlying fundamentals, markets appear to be pricing in rate cuts for 2023

US MARKETS

Despite fed tightening and mixed company results, technology stocks rally

The US economy contracted a second quarter running, this time by 0.9% (annualised). With the Fed tightening more aggressively than anticipated, investors now appear to be forecasting interest rate cuts in 2023. Although technology stocks had mixed results, with Netflix reporting better than expected ‘slowing’ revenue growth, and Alphabet (Google) disappointing on both earnings and revenue, despite advertising revenue rising by 0.9%, investors appear to be picking the best of the worst news, contributing to an overall tech stock rally.

Up 9.1% (US 500)

EUROPEAN MARKETS

Eurozone shares rise despite new inflation highs and continued energy challenges

Eurozone inflation hit fresh highs of 8.9% in July, driven by energy and food prices. Russia announced a reduction of gas supply to the region, leading the European Commission to request that member countries reduce energy consumption by 15%. With the collapse of Draghi’s Italian government and the increased likelihood of a recession, the Euro came under pressure, falling below parity with the US dollar. It was later supported by the ECB’s decision to increase rates by 0.5%. Euro area shares fared well as the economy grew by 0.7% in the second quarter, which was better than expected.

Up 7.6% (Euro 600 Index)

UK MARKETS

Falling commodity prices are a drag on UK equity markets

Falling commodity prices meant the FTSE100, due to its higher exposure to commodities, lagged other developed equity markets. The Bank of England is expected to increase interest rates by 0.5% as a means to cool inflation, with UK annual inflation rising to a 40-year high of 9.4% in the year to June 2022. While the Conservative Party decides shortly on who will lead the country next, UK economic growth is expected to slow as a result of multiple factors, including nationwide strikes.

Up 4.2% (UK All Share)

ASIAN MARKETS

Inflation, China, and the potential for a recession weigh on the region

Emerging Markets fell as inflation and the potential for a recession impact the region. China’s economy slowed down by -2.6% in the second half of 2022, as it continues with regulatory crackdowns and partial lock downs in some cities (in response to domestic COVID-19 cases). In Japan, markets were up on the back of a pickup in private consumption and lower inflation in the region (compared to other developed markets).

Down -0.9% (Asia Index)

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

 

 

Key Points

  • Equities staged a comeback, led by technology stocks, as markets were torn between good and bad news. The tech heavy Nasdaq Composite was up 12.4%.
  • The FTSE All-Share rose, and Small and Mid-caps, as well as the AIM indexes, performed well, as investors’ risk appetite returned.
  • Commodity prices pulled back in July, as recession fears, with the prospect for slowing demand, dented the prior commodity boom.
  • Euro markets were up, which was a positive sign given the on-going energy crisis, geopolitical risks, and rising inflationary environment.

 

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

 

Key Points

  • The US Dollar was flat against Sterling, while the Japanese Yen was stronger against both Sterling and USD.
  • The US Dollar continued to strengthen but not by as much as it had in previous months, owing to mixed economic data.
  • The Japanese Yen strengthened against most major currencies. This partial reversal of the previous trend could be attributed to the economic slowdown in China.
  • The Euro depreciated against most major currencies on the back of disunity amongst its members – about how to handle rationing gas supplies, as well as overall inflationary strains.

 

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

 

Key Points

  • Bond markets rallied as investors appear to be pricing in the possibility of the Fed cutting interest rates in 2023.
  • After a torrid first six months to 2022, bonds reversed the trend in July. Government bond yields retraced from their highs, which was due to uncertainty. The UK and US 10-year benchmark government bonds yields fell to 1.86% and 2.65% respectively.
  • The ECB raised Eurozone interest rates by a higher than expected 0.5%, pushing German 10-year Bund yields down below one percent to 0.87%.
  • There was partial recovery from higher-risk fixed income, as high-yield and corporate bonds rose by 4.1% and 2.8% respectively in July.

 

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.