Market Monitor – 29 July 2022
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Market Monitor – 29 July 2022

Stock markets around the world have enjoyed a largely positive week despite another large interest-rate increase by the US Federal Reserve (Fed) and signs that the American economy may be in a recession.

US markets

The Fed’s decision, on Wednesday, to raise rates by 75 basis points (bps), following similar moves in May and June, might have been expected to drive another wave of selling under other circumstances. However, the severity of inflation concerns facing the US and other major economies – and the need, therefore, for decisive action by central banks – meant that investors appeared to take the decision in their stride.
Data published on Thursday showed that the US economy had shrunk for a second consecutive quarter, between April and June this year. While this meets some economists’ definition of a recession, markets again displayed little negative reaction. Sentiment was helped by statements from Fed chair Jerome Powell and Janet Yellen, the Treasury secretary, which highlighted the economy’s underlying strength, in particular, the current high levels of employment.
On Wall Street, the Dow Jones Industrial Average ended trading on Thursday up 2% for the week so far, with the S&P 500 gaining 2.8%. Technology stocks had an especially good week, despite the Fed’s rate hike: there had been concerns leading up to the decision that the Fed might raise rates by a full 100bps.
With earnings season in full swing, second-quarter results from American retailers again highlighted weakening consumer demand, although there was better news from major US tech firms.

Europe

In the UK, the FTSE 100 closed on Thursday 0.9% up for the week: the biggest story in London was news of huge profits rises for two major energy companies as a result of the surge in oil and gas prices this year. Meanwhile, new economic data showed a continued slowdown in UK factory orders and output – although there are signs that falling commodities prices could be helping to ease inflationary pressures among manufacturers.

In Frankfurt, the DAX index ended Thursday’s session up 0.2% for the week, while France’s CAC 40 gained 2%. Shares in Germany lagged behind again as the European Union published plans to reduce the bloc’s dependence on Russian gas ahead of winter. The energy-intensive manufacturing sector in Germany stands to be hit hardest by such measures. A reduction in gas supply via Russia’s Nord Stream 1 pipeline this week, also did little to boost sentiment.

Asia

In Asia, the Hang Seng index in Hong Kong rose 0.1%, with gains limited by the Hong Kong central bank’s decision to raise interest rates. Banks and property developers were hit disproportionately hard by the news. Meanwhile, the International Monetary Fund cut its 2022 growth forecast for the Chinese economy to 3.3% from 4.4%.

 

Japan’s Nikkei 225 index of leading shares had lost 0.4% by Thursday’s close, with a strengthening Yen weighing on the value of the country’s numerous multinational companies and exporters.

June 3
June 9
Change (%)
FTSE 100
7276.4
7345.3
0.9
FTSE All-share
4028.3
4061.3
0.8
S&P 500
3961.6
4072.4
2.8
Dow Jones
31899.3
32529.6
2.0
DAX
13253.7
13282.1
0.2
CAC 40
6216.8
6339.2
2.0
ACWI
617.7
631.5
2.2
Hong Kong Hang Seng
20609.1
20622.7
0.1
Nikkei 225
27914.7
27815.5
-0.4

Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, as at 29 July 2022.

2 August 2022
Jim griffin
Jim Griffin
Investment Content Manager
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1 Manufacturers’ Goods Index, February, United States Census Bureau, 4/4/2022.
2 Oil giant Shell to take £3.8bn hit by leaving Russia, bbc.co.uk, 7/4/2022.

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