29 July, 2022
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Market Wrap
The week ended?July 29, 2022
*due to formatting you will now find market data at the bottom of the page*
Equity markets posted a second straight week of gains, shrugging off another 75bps hike from the Federal Reserve as well as a contraction in U.S GDP for the second quarter. The rally over the past two weeks meant July capped off the best month for equities since 2020 - the S&P 500 posted gains of over 7% for the month.
The recent positive shift in sentiment has been aided by the repricing of forward interest rates, as markets look to a “Fed Put” with Fed Fund Futures pricing in rate cuts by March 2023 – see graph below
Source: Bloomberg
The now commonly phrased term “Bad News is Good News” continues to play out with markets seizing downbeat news in hope of central banks slowing or ending interest rate hikes sooner than expected.
Stocks have also benefited from better than feared results during the Q2 earning season, particularly from tech giants, bumping index returns.
The U.S. yield curve remains firmly inverted as U.S treasuries yields fell again last week, the 2-year declined 9bps to 2.89%, while the 10-year tightened 12bps to 2.67%.
The move in U.S. treasuries was relatively benign compared to its global counterparts. Australian Government Bonds rallied significantly with yields falling close to 30bps for the 2-Year and 40bps for the 10-year, to 2.47% and 3.06% respectively.
Eurozone bond yields fell as inflation again peaked, and concerns about global growth increased after Russia further reduced gas supplies to the Nordstream 1 pipeline to 20% output (from 40%). The 10-year Bund fell 21bps to 0.82%.
The return to risk-on sentiment has seen corporate credit spreads tighten considerably over recent weeks. The Australia iTraxx reached 144 in mid-July, it has since retraced 34 points to 110.?
News and Data
Australia
Headline inflation increased to 6.1% YoY, the fastest annual increase in 21 years. While the RBA’s preferred measure, Trimmed Mean, rose to 4.9% up from 3.7% in the previous quarter, ahead of consensus.?
Australian Retail Sales edged higher although weaker than expected at 0.2% MoM.
United States
The U.S. Federal Reserve passed a 75bps rate hike, taking its benchmark rate to a range of 2.25% to 2.50%. This is the Fed’s second consecutive 0.75 percentage point interest-rate hike.
U.S. GDP contracted at -0.9% in the second quarter of 2022. This decline followed a contraction of -1.6% in the first quarter. Traditional benchmarks would indicate a technical recession; however, the Biden administration has rejected the notion that the U.S. is in recession due to robust jobs data.
PCE inflation rose with headline prices up +6.8% over 12 months as forecast from +6.3% previously, while core inflation rose +4.8% modestly higher than the +4.7% forecast.
Global
Inflation across the Eurozone reached a new high of 8.9% in July, up from 8.6% in June. Core inflation, which excludes volatile items stood at 4.0%, the highest mark since the creation of the euro. Disruption in global energy markets and Russia’s intervention of gas flows to EU countries further deepens the crisis, which has now seen inflated energy prices spill over into other products such as fruit and vegetables.
Tensions are heightened in Southeast Asia, with rumours of military exercises by China as U.S speaker of the House Nancy Pelosi begins a tour of the region. China reportedly has issued warnings to the U.S if Speaker Pelosi visits Taiwan, breaching their “One China” policy.
The Week Ahead
Key Events
Market Data
Bids/Offers
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The views expressed herein are the personal views of the author and in no way reflect the views of the BGC Group.?Individuals should make investment decisions based on a comprehensive understanding of their own financial position and in consultation with their own financial advisors.?No liability whatsoever shall accrue to the author or the BGC Group as a result of individuals or entities making investment decisions based wholly or partly on this material.