Shares fell again last week, extending losses for the year, writes Ian Slattery.
The week started off on a positive note before Friday’s US inflation data led to steep declines through the close of the weekend.
Consumer price inflation in May came in at 8.6% (year-on-year) against expectations of 8.2%, while the core figure (which excludes energy and food) was 6.0% against a forecast of 5.9%.
The Federal Reserve is now all but certain to raise interest rates this Wednesday to 1.5% (a 0.5% increase), with many commentators even calling for a 0.75% move after the week’s data last.
The Bank of England is also expected to raise rates on Thursday, while the Bank of Japan is expected to buck the trend by keeping rates unchanged on Friday. Although the reduction in underlying inflation in the United States has been positive, the market is firmly positioned for an aggressive rise in interest rates throughout the summer.
Short-term US Treasuries, especially two-year bonds, are the most sensitive to changes in interest rates. With that, we saw the 2-year yield jump 0.2% to end the week above 3.0% and is now at its highest level since 2008. Consumer sentiment also took a hit, as the preliminary reading for June came in at 50.2 – a record low. .
The ECB took another step in the “normalization” of interest rate policy in the currency bloc, announcing that net purchases under its APP QE program would cease from July 1. Although rates were kept on hold last week; increases in July, September and again before the end of the year are now well reported.
In the UK, domestic politics dominated the narrative, with Prime Minister Johnson surviving a vote of no confidence last Monday. However, he remains under pressure both domestically and internationally over his plans for Northern Ireland Protocol.
Global equities fell last week by -3.6% in euros and -5.3% in local terms. Year-to-date, global markets are down -11.0% in euros and -17.6% in local terms. The US market, the largest in the world, fell -3.7% in euros and -5.4% in local terms.
Fixed Income and Foreign Exchange
The US 10-year rate ended at 3.23% last week. The German equivalent finished at 1.55%. The yield on Irish 10-year bonds ended at 2.26%. The euro/US dollar exchange rate finished at 1.05, while the euro/GBP finished at 0.86.
Oil ended the week at $119 a barrel and is up 71.0% year-to-date in euros. Gold ended the week at $1,855 per troy ounce and is up 10.0% year-to-date in euros. Copper ended the week at $9,447 per ton.
The week ahead
Wednesday 15e June
A rate hike of 50 basis points is expected from the Federal Reserve.
thursday 16e June
The Bank of England meets, where a rate hike of 25 basis points is expected.
Friday 17e June
No rate changes expected from the Bank of Japan as UK retail sales will also print.
About: Zurich Investments
The Zurich Investments team is a long-established and highly experienced team of investment managers managing approximately €31 billion in investments, of which pension assets amount to €18.4 billion. To learn more about Zurich Life’s funds and investments, click here.
The Zurich Investments team is a long-established and highly experienced team of investment managers managing approximately €31 billion in investments, with pension assets of €18.4 billion. To learn more about Zurich Life funds and investments, w: zurichlife.ie/funds,