FIS | Weekly Update

Market Wrap

The week ended July 1, 2022

Equity markets could not maintain the positive momentum from their previous week, with major indices closing weaker and rounding out one of the worst half-year performances in decades. Over US$9 trillion in market capitalisation has been eroded over the past six months according to data from Bloomberg. The last time U.S stocks endured such a gruelling start to a year was in 1970 when similarly, equities sold off in response to ballooning inflation and a pending recession.

Bond markets rallied (yields fell) last week on weaker data, with indications of sluggish growth and potentially moderating inflation. This forced investors to reconsider the path central banks may take moving forward with the growing likelihood of a global recession.

• The U.S. 10-year yield crunched in 25bps from the week prior, to 2.88%. 2-year notes basically moved in sync, falling 23bps to 2.83%
• Strong demand for the Australian 2-year saw its yield tumble a massive 54bps, to 2.49%
• Government bond yields in the Eurozone also fell, the German 10-year Bund back to 1.23%
• UK 10-year Gilts fell 22bps, to 2.09%. Near 60bps from their highs

As recessionary fears grow, corporate spreads continue to widen. U.S. and global investment-grade corporate yields increased 110-125 bps in 2Q, while those for high-yield rose 288-303 bps as rates increased and spreads widened. U.S. and global investment-grade corporate spreads have risen 39-51 bps, as those for global and U.S. high-yield have climbed 244 bps, these are based on Bloomberg indexes.

The chart below illustrates the move in high-yield corporate (blue and white) and investment-grade corporate (orange and pink).?

? Source: Bloomberg

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Economic data

Australia

Subdued week in economic data for Australia.

The key release was retail sales which came in better than expected at 0.9% m/m vs 0.4% surveyed.

Attention remains firmly on the RBA policy meeting Tuesday (today at 2:30 PM). Consensus points to a 50bps hike.

U.S

Consumer sentiment hit a 16-month low, as inflation continues to dampen views.

The June?Institute for Supply Management?(ISM)?Manufacturing Index showed manufacturing growth slowed more than expected. The index declined to 53.0 in June, from May's 56.1 level, versus the consensus Bloomberg estimate of 54.5.

May personal consumption expenditures (PCE) indicated that consumers are pulling back. Adjusted for inflation, purchases fell 0.4% in May, the first decline in 2022, driven by a 1.6% drop in goods purchases; purchases of services rose 0.3%, but much of the increase was driven by spending on health care and housing.

The Atlanta Fed’s GDPNow model estimate of annualized growth in Q2 is down to -2.1%. If modelling is accurate this could indicate the U.S. may already be in recession, following a 1.6% contraction in GDP during Q1 – using the common definition of a “technical recession”, being two consecutive quarters of negative growth.

EU/UK

The annual inflation rate in the eurozone climbed to 8.6%, the highest level recorded since the formation of the euro currency back in 1999.

UK balance of payments deficit hit a record high in Q1, in part due to the soaring cost of its fuel imports. The deficit is now 8.3% of the country's GDP.

Bond Offers

We have a variety of bonds being bid and offered, please get in touch with a BGC fixed income representative if you have any interest or would like to know more.

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.