Weekly round up
Headlines were dominated by the rail strike this week, however UK markets managed to withstand selling pressure with the FTSE 100 Index rising by 1.1% to end the week at 7,108 points at the time of writing.
Investors welcomed the retreat of oil and raw material prices seen throughout this week, which has raised hopes that inflation could have peaked. Lower bond yields also improved the appetite for high-value growth stocks.
Retail sales in the UK dropped 0.5% over the previous month in May, as soaring prices hurt spending and consumers cut back on grocery shopping. Meanwhile, Boris Johnson’s leadership entered a new crisis on Friday after two by-election defeats, followed by the resignation of Conservative party chair Oliver Dowden.
The GfK consumer confidence indicator fell again in June, adding to concerns of a pullback in consumer spending amid sluggish economic growth. The consumer mood is currently darker than the early stages of the Covid-19 pandemic, the result of the 2016 Brexit referendum and the shock of the 2008 global financial crisis, amid fears of a looming recession.
In the commodity markets, Brent crude futures traded around $110 per barrel on Friday. Oil is on track to decline for the second straight week, pressured by fears that aggressive monetary tightening in major economies could lead to a global recession and dampen demand. However, global oil supply remains tight with OPEC+ struggling to hit a previously agreed 7% increase in output. Gold declined to around $1,825 an ounce this week, as expectations that major central banks will continue to aggressively raise interest rates to target runaway inflation weighed on bullion demand.
In China, the Shanghai Composite and the Shenzhen Component closed at their highest levels in almost four months on Friday, as Chinese stocks received a boost from Beijing’s policy support. Chinese President Xi Jinping vowed this week to meet the country’s economic targets for the year and minimise the impact of Covid-19, while signalling support to leading payment and fintech firms in the latest indication of easing regulatory crackdown.
US equity futures traded higher on Friday after the major averages rebounded in the previous session. Wall Street looked to make a strong weekly comeback following an extended sell-off. So far this week the Dow Jones Industrial Average is up 2.64%, the S&P has gained 3.29% and the Nasdaq Composite soared 4%, with all three averages set to break three weeks of losses.
However, analysts are expecting the rebound to be short lived with recessionary fears remaining a top concern among investors. Federal Reserve Chair Jerome Powell reiterated that his commitment to bringing down prices was “unconditional” in a testimony to congress this week, whilst Fed governor Michelle Bowman also backed raising interest rates by 0.75% again in July. Data showed the growth in private activity was the second weakest since July 2020, with the first contraction in manufacturing production in two years.
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