Green is the warmest color, with every major index growing in the June 12th-16th week.
A good week for world markets as fresh inflation data cleared the air of a possible US recession. Both the Federal Reserve and the European Central Bank held monthly meetings, diverging for the first time in months.
Let’s start with some numbers:
- In the United States, the Dow Jones closed the week at +1.16%, the S&P 500 at +2.35%, and the Nasdaq 100 at +3.19%;
- Despite the ECB intervention, European markets grew as well. The London LSE ended at +1.06% and the Frankfurt Dax at +1.90%;
- Finally, Asian stocks were the highest performing this week, with Shanghai closing the week at +1.49%, Hong Kong at +3.08% and the Nikkei Tokyo at +3.99%.
US inflation better than expected, again
The first major market mover last week was American inflation falling to 4% year-on-year. A 0.9% drop from the previous month and a better performance than forecast.
Core inflation, on the other hand, remained stable at 5.3%, confirming that high consumer prices are being driven by the housing market.
Inflation in the United States has overperformed for two months in a row, signaling success in the Fed’s high-interest rates strategy. Furthermore, energy prices keep falling despite OPEC’s plea to cut oil supplies starting in July.
The Fed’s inflation target is, however, 2%. The most hawkish analysts predict two more hikes in 2023, with the first cuts starting in 2024 and a final return to pre-Ukraine war levels in 2025.
The Fed and the ECB diverge
The optimistic inflationary news prompted the Federal Reserve to stop rate hikes for the moment. At their June meeting, they kept interest rates stable at 4.75%-5%. This is the first deviation from the hawkish strategy that began in March 2022.
Fed’s Chairman Jerome Powell stated this is a mere pause in rate hikes to give respite to American businesses.
On the other side of the Atlantic, however, the situation looks grim.
While European inflation falls at the same pace as in the US, it started at a higher level. EU inflation is currently 6.1% year-on-year, deemed "too high" by ECB President Christine Lagarde.
During this week’s ECB meeting, they raised interest rates by 0.25% again.
The European economy is seriously suffering from its proximity to the Ukraine war. Inflation is high and GDPs are decreasing, with Germany and the Eurozone falling into recession in May.
The rest of the European Union will likely recede in 2023, with the energy crisis resuming next winter. A bleak scenario with no end in sight.
