Market Commentary 5th July 2022 from Charlie Hancock

Posted by Telford Mann

Market Commentary 5^th July 2022

Equity Indices

UK Equities handed back some of the gains made in the previous week. The FTSE 100 dipped 0.69% whilst the FTSE 250 dropped by 2.55%. Statements made by Andrew Bailey, the Governor of the Bank of England, pointed towards a further deteriorating economic outlook towards the end of the week.

Economic data on Nationwide Housing Prices showed the month on month change to be an increase of 0.3% falling from 0.9% in May. The average house price has reached a new record high of £271,613, therefore the housing market still appears to be carrying momentum.

Airline groups have taken a hit following continued delays in airports around the UK. The low-cost airline group EasyJet has seen their share price fall by 16% over the past week whilst IAG the owner of British Airways have seen a fall of 10.6%. This highlights the lingering effects of COVID-19 on various sectors with British Airways cutting over 10,000 employees during the pandemic.

Europe

Europe saw similar falls over the past week with poor sentiment spreading worldwide. The German DAX Index saw a fall of 2.33% and France’s CAC 40 suffered a decline of 2.34%. Europe’s broader FTSE All World Index – Europe ex UK suffered a similar fate falling by 2.76%.

The Composite Economic Sentiment Indicator in Europe fell to 104 over the month of June, this measures the confidence amongst a range of different sectors. It has fallen to its lowest figure since March last year, echoing the poor outlook by Central Banks and investors alike.

Power supply continues to be squeezed in Europe in the wake of continued gas cuts by Russia. Gas prices within Europe have quadrupled since the end of June 2021 causing lasting impacts on both households and industry, further contributing to surging inflation. The Euro Area has since seen record high inflation levels of 8.6%.

Leading on from a strong last week, US equities have fallen in value following continued concerns regarding inflation. The S&P 500 saw its value fall by 2.21% and the tech heavy NASDAQ 100 declined by 4.30%. More heavily weighed to industrials the Dow Jones Industrial Average held up better over the week, falling by 1.28%.

The increased levels of inflation within the US appears to be taking its toll on jobs and hiring as new jobs added in June had fallen by around 29% from the month of May. Economists are betting that the weeks of higher interest rates, slowing growth and falling indices are now sinking into the labour market.

The S&P 500 has suffered its worst first half of the year since 1970 with 21% of its value at the start of the year being wiped off, although this came after a 27% gain during the latter half of 2021. Despite this, some investment strategists are hopeful for the second half of 2022 as the personal consumption expenditure prices index rose less than expected, which the Federal Reserve uses for its inflation target.

Asia

Asia saw a more diverse range of movements over the past week compared with other major continents. The broad FTSE All World Index – Asia Pacific declined by 1.53% over the week and Japan’s Nikkei 225 had fallen by 2.10%. China was an exception seeing the Shanghai Composite Index gaining 1.13%, continuing on from the previous week’s growth.

Economic data on business sentiment in China, measured by composite Purchasing Managers Index (PMI) climbed to a 13-month high of 54.1 at the end of June. This comes from continued easing of COVID-19 restriction in their major cities such as Shanghai and Beijing.

Chinese president Xi Jinping visited Hong Kong on Friday pledging support for Hong Kong’s financial and trading hub as investors feel the tech sector crackdown may be easing off. June has seen China’s largest one month rise in stock market value since July 2020 whilst Hong Kong’s Hang Seng has also seen a near 10% rise over the month of June.

Bond Yields

The 10-Year Gilt yield moved lower across the week, declining from 2.30% to 2.08%. Economic data throughout the month of June has been weak and the yields from bonds have continued their downward trend.

Europe

The 10-Year German Bund yield declined from 1.44% to 1.22%. European bond yields have slumped further as economic outlook around the Eurozone becomes more bleak and pressure has continued to build on the European Central Bank to tackle rising inflation

The 10-Year Treasury yield declined from 3.14% to 2.80% last week. The Fed Chair, Jerome Powell noted during the European Central Bank’s Forum on the 29^th June that they aim to move into more ‘restrictive territory’ fairly quickly.

Currency

GBP / USD – Current 1.2092 Previous 1.2268

GBP / EUR – Current 1.1600 Previous 1.1627

The Pound saw a poor week against both the US Dollar and the Euro, experiencing larger falls towards the end of the week. Poor economic data and sentiment within the UK have been a factor over the course of the week.

Commodities

Gold

The Gold spot price has fallen another week by 0.91% to reach $1,810.18. Gold moves further down as central banks are announcing further interest rate rises.

Oil

The Brent crude spot price fell across the week, now sitting at $108.91 per barrel. Oil supply continues to be limited around the globe although a fall in demand has outweighed this over the week. Biden tweeted amidst the soaring price at the pump “Bring down the price you are charging at the pump to reflect the cost you’re paying for the product. And do it now,”.