Weekly round up
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It has been a quiet week on the global financial markets with Wall Street closed on Monday to mark Memorial Day and a shortened week on the UK markets to mark the Platinum Jubilee of Queen Elizabeth II.
The FTSE 100 Index was little changed, ending the three-day trading week at 7,595 points at the time of writing. Investors have remained cautious during May as the Bank of England warned the economy would come close to recession by the end of the year when inflation is set to reach double digits.
The Nationwide House Price Index in the UK increased 11.2% year-on-year in May 2022, following a 12.1% rise the previous month and beating market expectations of a 10.5% gain. The price of a typical UK home accelerated to a fresh record high of £269,914, marking the tenth successive monthly increase.
However, the housing market is expected to slow as the year progresses with rising interest rates increasing the cost of mortgage repayments and household finances remaining under pressure. Economic data from the Eurozone showed inflation soared to a record of 8.1% in the year to May, piling pressure on the European Central Bank to speed up the pace of its exit from ultra-loose monetary policy.
In the commodity markets, Brent crude futures traded around $117 per barrel on Wednesday after a sharp intraday reversal that saw the benchmark end lower in the previous session, as investors weighed an EU ban on Russian oil and Shanghai’s reopening against reports OPEC may suspend Russia from a production deal.
Oil prices initially rallied on Tuesday after EU leaders agreed in principle to cut 90% of Russian oil imports by the end of this year, as well as in anticipation of Shanghai’s reopening after a two-month lockdown. However, crude prices turned sharply lower following reports that some producers were considering suspending Russia’s participation in a production deal of OPEC+, which could pave the way for other producers to pump more crude into markets.
Gold fell below $1,830 an ounce, hitting its lowest in nearly two weeks and remaining under pressure from a rising dollar and Treasury yields. The outlook for interest rates and the dollar still present major headwinds for gold, as investors continue to speculate on how aggressive monetary tightening will need to be to fight inflation.
US equity futures traded slightly higher on Wednesday after Wall Street broke its winning streak in Tuesday’s regular session. The Dow Jones Index closed 0.67% lower on Tuesday, whilst the S&P 500 and the Nasdaq Composite lost 0.63% and 0.41% respectively.
The market is forecast to remain volatile over the summer as investors contend with an evolving economic outlook, as the first quarter earnings season draws to a close, and investors continue to speculate on how aggressive monetary tightening will need to be to fight inflation. The personal consumption expenditure inflation rate eased last week, strengthening expectations that the Federal Reserve will not embark on more aggressive interest rate hikes.
By contrast, Federal Reserve Governor, Christopher Waller, said this week that the central bank should be prepared to rise interest rates by 0.5% at every meeting from now until inflation is decisively curbed. President Joe Biden also assured Fed Chair Jerome Powell in a meeting on Tuesday that he will give the central bank the space and independence to address inflation as it sees fit.
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