Weekly recap 13-17 June 2022

EUA

After a week of some gains, the major stock market indices are back in negative territory. Economic uncertainty is in the spotlight with investors’ growing fears that the economy may go into recession.

One of the main stimulants was the Federal Reserve meeting. There hasn’t been such an aggressive key interest rate hike in almost 30 years. Some investors expected a 0.50% hike, but due to rising inflation, the Fed was forced to raise 0.75%. Although Jerome Powell gave assurances that this would not be repeated next month, many investors now see it as a strong possibility if the economy continues down this path.

The rise in the key interest rate is already starting to have an impact on the housing market. With declines in some real estate indicators revealing lower demand and home construction. Other indicators like unemployment data and retail sales disappointed investors.

Europe

Despite not having a meeting scheduled, the ECB decided to organize an emergency meeting with the Eurozone Finance Ministers due to the possibility of a new debt crisis. This is after some countries such as Portugal, Greece, and Italy saw their debt costs rise sharply. They announced that they would introduce mechanisms to prevent such rises, but did not specify the mechanism or concrete figures.

The United Kingdom continues to raise its key interest rate, for the fifth time. It is currently at 1.25%. Some members of the Bank of England voted for a 0.50% hike, something that may happen in view of the revision of inflation to 11% in October. Another revision made was to growth, where an economic contraction is expected for this second quarter.

Asia

The main Japanese indices had a sharp drop this week. Not because of poor Japanese economic conditions, but because of the Fed’s decision that created some fear in investors. The Bank of Japan continues with a very dovish monetary policy, keeping its key interest rate negative and with plans to do some more capital injections to help the economy.

In China, things look more positive. The growth in the month of May and the reduction in the number of cases of COVID-19 have improved investors’ view of the Chinese market. With the reduction in cases, the confinements have also reduced, thus allowing many companies to return to previous levels of production.

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