Global stock exchanges rallied back in the second week of July. US inflation has mostly driven market optimism.
After a long month of rally in June, it seemed markets understood the danger of interest rates as they collectively dropped in the first week of July. However, this week they started rallying again following positive signs from the economy.
But first, let’s start with some numbers:
- The S&P 500 steadily rose by +2.77%, the Nasdaq Composite by +3.95% and the Dow Jones by +2.33%;
- Recession-battered Europe also saw a green market week, with Frankfurt closing at +3.58%, London at +2.45%, and Milan at +3.72%;
- Finally, Chinese markets joined the party too with Hong Kong rallying by +3.55% and Shanghai by +0.90%;
- The only major market to not experience growth was the Tokyo Nikkei, which stabilized this week ending at -0.059%.
Inflation down, markets up
The biggest (and least surprising) market mover this week was US June inflation. It dropped to 3% annually, a larger decrease than expected.
Markets immediately rejoiced at the news, rallying as we saw for the rest of the week.
Stock exchanges, however, do not seem to be aligned with central banks’ hawkish strategies. The American Federal Reserve and its Chairman Jerome Powell made it clear that interest hikes will continue, at least until core inflation will be tamed.
Core inflation measures consumer prices without volatile products like food and energy. It’s a more realistic way of looking at inflationary trends in the economy. In June, US core inflation dropped to 4.8%, still far from the Fed’s 2% target.
At their July meeting, the Fed is very likely to continue raising interest rates. At the same time, the European Central Bank and the Bank of England are expected to do the same.
UK stagflation continues
One country whose inflation is not going down is the United Kingdom. Indeed, UK May inflation actually rose to 8.7% annually, almost nearing the US’ highest measurement in June 2022.
The UK has incurred a seven-year-long economic stagnation, lagging behind in every measure compared to its G7 peers. Only Germany has recently been doing worse due to the energy war with Russia.
Exports have fallen continuously since Brexit officially began. UK Prime Minister Rishi Sunak brokered a trade deal with South-East Asian countries, but it largely falls short of the European Union’s offered. Not to mention that being part of the EU does not prevent third-party trade agreements.
"The UK’s stagnating economy has continued to slip further and further behind that of the EU’s, as a direct result of the damaging Brexit," a spokesperson for the Scottish National Party said. And this problem appears unsolvable.
