- Weekly market update
- 5 minute read
A good week for
- Bonds rallied, with UK gilts up +1.4%.
- The US dollar gained +0.9% on a trade weighted basis.
A bad week for
- Sterling weakened against main currency pairs, falling -1.4% versus the US dollar.
- UK equities fell -0.8% in sterling terms.
Last week’s data painted a mixed picture, with some signs of weakness within the US economy. Durable goods orders were stronger than expected (a sign that business spending plans remain strong) and home data held up, but construction spending fell -0.1% in May, primarily due to weakness in the non-residential sector. Consumer data also disappointed. May’s personal spending fell -0.4% in real terms, while the Conference Board’s consumer confidence indicator also fell in June as expectations weakened. Business surveys also weakened - the ISM Manufacturing survey weakened as businesses on average reported deteriorating new orders and employment intentions. Given the high ratio of job vacancies to unemployed people, some softening in the labour market would be welcome news to the Federal Reserve’s Open Markets Committee (FOMC) members. FOMC Participants anticipate raising rates significantly in 2022, which has been unwelcome to markets. However, if higher interest rates and very high inflation begin to weigh on the economy soon, economic slack could bring down inflation forecasts, reducing the need for the Fed to raise rates as high.
European Union countries reached agreement on how to regulate the crypto-asset market last week. The Markets in Crypto-Assets regulation will provide a common framework for regulating these assets across all 27 member states. This is the first instance of a wide-scale globally coordinated effort to regulate crypto-assets, and includes the supervision of crypto-asset service providers, consumer protection and environmental safeguards.
Chinese stocks recovered some lost ground last week, after a change in travel restrictions. China’s National Health Commission announced a relaxation of quarantine requirements for international travellers, halving the mandatory quarantine period. Other restrictions remain in place, including pre-departure tests. Airlines also face a cap on the number of flights they can operate and the number of passengers they can carry, making international travel more expensive. They have also faced bans and last-minute cancellations by regulators as part of the health code. China is expected to relax its approach to social restrictions later this year, but in the meantime curbs are weighing on the economy, making it unlikely that China’s 5.5% growth target will be reached.
Last week’s UK data hinted at weaker growth to come. The Lloyds Business Barometer, a survey of businesses, slipped to a 15 month low, signalling slowing growth momentum. The detail of the survey showed a softer reading for hiring intentions, and indicated wage growth may slow. Given negative real wage growth, consumers must use savings and credit to support consumption spending, but June’s credit data showed a drop in credit growth, while savings continue to grow above pre-pandemic levels, suggesting consumers are cautious. Mortgage borrowing remained a bright spot, though house price growth did slow and higher mortgage rates, coupled with lower disposable income, are expected to weigh on house price growth for the remainder of the year.
At the Madrid NATO meeting, member states will agree to ready themselves against Russia. The alliance is to send 300,000 additional troops to the region in a state of readiness. Forces will be positioned in the Baltic states and five other countries, and currently number around 40,000. Plans for Finland and Sweden, Russia’s neighbours, to join NATO were halted by objections from Turkey over support for Kurdish groups, though discussions reportedly continue. Europe, whose leading nations are also NATO members, has been compelled to handle relations with Russia delicately, due to the region’s reliance on Russian gas. However, access to gas has slowed and the outlook for supply is uncertain into the autumn, changing the tone of negotiations.
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