London, Saturday, 11 June 2022
Stocks are being dragged down by higher-than-expected inflation.
Despite some early-week strength, stocks ended the week with significant losses. Following the announcement of hotter-than-expected consumer price index (CPI) data for May, the stock market swung south on Thursday afternoon, and the selling accelerated on Friday.
Trading volumes were moderate at the start of the week, and volatility as assessed by the Chicago Board Options Exchange (CBOE) Volatility Index, or VIX, was low, but volatility spiked substantially at the end of the week.
Oil prices rose for the majority of the week before dipping on Friday, resulting in a slight gain for the week and some support for energy sector companies. Higher interest rates lowered the appeal of companies that may not create major revenues until a long time in the future, causing losses in the tech-heavy Nasdaq Composite to outperform the general market. Growth stocks fared better than value equities.
Friday’s Close: 31,392.79
Week’s Change: -1,506.91
Change YTD: -13.61%
Friday’s Close: 3,900.86
Week’s Change: -48.74
Change YTD: -18.16%
Friday’s Close: 11,340.02
Week’s Change: -672.71
Change YTD: -27.52%
(Source: Yahoo! Finance and Bloomberg) This summary is for presentation purpose only. It does not represent the performance of any specific security. Past performance cannot guarantee future results.
After the European Central Bank (ECB) signalled that it would raise interest rates faster than expected after July, when it aims to end its ultra-loose monetary policy, European stocks plummeted dramatically.
The pan-European STOXX Europe 600 Index finished 3.95 percent lower in local currency. The DAX Index in Germany fell 4.83 percent, while the CAC 40 Index in France fell 4.60 percent.
The FTSE MIB Index in Italy fell 6.70 percent on concerns about the country's ability to manage its national debt load without the help of the central bank. The FTSE 100 Index in the United Kingdom fell 2.86 percent.
The rise in core Eurozone government bond yields was largely due to the ECB policy meeting, which markets saw as more hawkish. The yields of peripheral Eurozone and UK government bonds closely mirrored those of core markets.
The European Central Bank (ECB) has indicated that it will begin boosting its benchmark deposit rate, which is presently at -0.5 percent, by a quarter point in July to combat high inflation. "If the medium-term inflation forecast persists or worsens, a greater increment will be justified at the September meeting," the central bank noted.
On July 1, the ECB confirmed that net bond purchases under its asset-buying programme will come to an end.
The ECB decreased its economic growth prediction while raising its inflation forecast, which it now expects to remain above the 2% target for the three-year forecast period.
Inflation is anticipated to rise to 6.8% in 2022, up from 2.6 percent the previous year, before falling to 3.5 percent in 2023 and 2.1 percent in 2024.
The ECB forecasted a 2.8 percent growth rate this year, down from its previous prediction of 3.7 percent. Economic growth is expected to decline to 2.1 percent in 2023 and 2024, according to the central bank's predictions.
Prime Minister Boris Johnson defeated a challenge to his leadership with 59 percent of the vote in a vote held by Conservative Party members of parliament. Johnson has been chastised for throwing parties in the prime minister's office amid the UK's coronavirus lockdown.
China's stock market rose on expectations of looser monetary policy and hints that Beijing was loosening its years-long crackdown on the technology sector.
According to Reuters, the broad, capitalization-weighted Shanghai Composite Index surged 2.7 percent, while the blue chip CSI 300 Index, which monitors Shanghai and Shenzhen's largest listed companies, gained nearly 3.7 percent in its highest weekly increase since February 2021.
The Nikkei 225 Index gained 0.23 percent for the week, while the wider TOPIX Index gained 0.51 percent.
Cabinet Office data showed that Japan's economy contracted by an annualised 0.5 percent in the first quarter of this year, which was less than the initial projection of a 1.0 percent contraction. The reopening of Japan to tourists offered an additional boost.
The yield on the 10-year Japanese government bond increased to 0.25 percent from 0.23 percent at the end of the previous week in fixed income markets.
Meanwhile, yen weakness continued to benefit Japan's exporters, with the currency finishing the week around JPY 133.9 against the US dollar (up from JPY 130.8 the week before), hovering near two-decade lows.
(Report by: The Decision Maker – Finance editors)