Market Overview from Quilter Cheviot
by Alan McIntosh, Chief Investment Strategist
The latest inflation data from the US and the start of earnings season made for a fairly volatile week for global stock markets, with the MSCI All Country World Index ending down by 1.6%. The US consumer price index (CPI) rose by 9.1% for the 12 months to June, the fastest rate of year-on-year growth since 1981.
The monthly inflation figures also made for not pleasant viewing for the Federal Reserve, as the index rose 1.3% on that basis. A double-digit increase in gas prices in June played a role in boosting the readings, but there was also plenty of evidence that inflation remains broad based on the monthly core reading, which excludes food and energy, also delivering an upside surprise, to come in at 0.6%.
US equity benchmarks registered losses for the week, falling just less than 1% as the markets attracted buyers heading into the weekend to recoup some of the declines. Energy stocks underperformed as the oil price fell back to trade at its lowest level since the Russian invasion of Ukraine. International benchmark brent crude fell below US$100 a barrel in the middle of the week, but also found buyers into Friday’s close, ending back above the big psychological level.
US government bond yields fell on growing fears of a forthcoming recession, with the 10-year Treasury bond yield dipping back below 3% to close at 2.92%. The inversion of the 2-year/10-year part of the curve deepened, seen by some as another sign of a recession ahead. UK gilt yields also fell back after a sizable increase the prior week. The 10-year gilt yield ended at 2.09%, down from 2.23%.
Economic growth in the UK came in stronger than expected with a 0.5% GDP increase month-on-month for May. A large increase in doctor appointments boosted the figures according to the Office for National Statistics. The first rounds of voting among Conservative MPs for their next leader occurred, with more rounds scheduled in the coming weeks before two candidates will be put forward to a vote of party members in September.
UK shares declined on the week with large-cap benchmarks shedding around 0.5% and mid-caps slightly outperforming with a 0.4% drop. Overall, European equities were also lower, with bloc-wide benchmarks showing a decline of around 0.8%. There was a notable differentiation between countries though with French shares outperforming to hold pretty much flat for the week while Italian stocks were a clear laggard, falling almost 4% on renewed political instability. Core eurozone bond yields fell on growing concerns Russian gas supplies may be cut, tipping European economies into recession. The yield on the German 10-year bond fell to 1.13%, down 21 basis points on the week.
The single currency fell below parity with the US dollar for the first time in 20 years, although it recovered some of the lost ground to end back above that level. The European Central Bank meets this Thursday and is expected to begin the process of hiking rates.
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