Weekly round up
UK markets rose to a seven-week high this week, led by gains across the banking sector, with the FTSE 100 Index rising by 1.85% to trade at 7,386 points at the time of writing.
Investors digested mixed earnings reports this week, amid worries about the economic outlook and expectations of a less aggressive tone from the US Federal Reserve. There was better than expected results from UK lenders NatWest and Standard Chartered, while British Airways owner IAG returned to profit for the first time since the Covid-19 pandemic.
Unsurprisingly, the oil majors posted strong results as well as strong forecasts from Reckitt Benckiser, Unilever and Lloyds Banking Group, which overshadowed concerns over a slowing economy and soaring inflation. UK businesses reported a fall in confidence this month, as inflation and cost of living worries drove negative sentiment. Despite the more challenging outlook, businesses’ assessment of their own trading prospects remained relatively resilient.
The eurozone economy expanded 0.7% for the three months to June of 2022, following a downwardly revised 0.5% growth in the first quarter and beating market forecasts of a 0.2% gain. This represents the strongest growth in three quarters, prompted by the easing of Covid restrictions and the summer tourism season. Nevertheless, there are still warning signs of an imminent recession with the German economy grinding to a halt as energy prices soared. The energy crisis in Europe is far from over, natural gas cuts from Russia threaten the outlook for the winter putting further pressure on inflation and interest rates.
In the commodity markets, Brent crude futures traded around $109 per barrel on Friday and were set to end the week higher after another period of heightened market volatility, as traders weighed signs of tightening supplies against worries over an economic slowdown. On Thursday, Shell CEO Ben van Beurden stated: “Where we are today, there is more upside than downside when it comes to the oil price. Demand hasn’t fully recovered yet and supply is definitely tight”.
Gold traded above $1,760 an ounce on Friday, rising for the third straight session to its highest level in three weeks, as negative US GDP data prompted markets to scale back hawkish expectations from the Federal Reserve. Gold prices are still set to decline for the fourth straight month, having faced constant pressure since March from a rallying dollar and US bond yields.
US equity futures rose on Friday on solid earnings from major tech companies following expectations that the Federal Reserve will slow down the pace of monetary tightening. Nasdaq 100 futures jumped over 1%, S&P 500 futures gained 0.75% and the Dow Jones Industrial Average rose by 0.2%. Amazon soared over 11% in pre-market trading on better-than-expected revenues and a positive outlook, while Apple gained approximately 2.5% after beating estimates on the top and bottom lines.
The major averages rose for a second straight day on Thursday as a negative GDP reading revealed the US economy contracted for a second quarter, fuelling recession fears and raising expectations that the Federal Reserve may need to slow down the pace of interest rate hikes. The data was released a day after the US central bank raised its policy rate by 0.75% in a widely expected move, with Federal Reserve Chair Jerome Powell saying that it will likely become appropriate to slow the pace of rate increases depending on the flow of data.
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