After one month of bullish trends, markets finally rebounded at the end of June following optimistic inflation data in the European Union.
The last week of June saw markets rally following a month of general downturn. Mainly, market optimism was caused, once again, by positive inflationary data which shows central banks’ hawkish strategy is working.
First, let’s see some numbers:
- The S&P 500 ended the week at +2.18%, the Dow Jones at +1.82% and the Nasdaq Composite at +2.20%. Every American stock exchange rose especially on Friday;
- In Europe, the situation was similarly good. Frankfurt closed the week at +1.85%, London at +0.93% and Milan ended with a massive +4.81%, one of its best performances this year;
- Finally, the Tokyo Nikkei ended at +1.66% and the Hong Kong stock exchange, despite a significant drop on Friday, also managed to close the week in green with +0.37%.
EU inflation drops more than expected
The most important market mover this week was also the last to be released.
Inflation in the European Union dropped to 5.5% year-on-year in June, more than Reuters polled experts predicted. The news came early on Friday.
Food costs still drive EU inflation, as food, alcohol, and tobacco prices rose 11.7% in June compared to last year. Core inflation also remains high, signaling a pending housing market crisis.
For these reasons, the European Central Bank is likely to keep raising interest rates, at least two more times according to experts. At their next meeting in September, they will also consider summer inflationary data.
Surprisingly, Germany’s annual inflation amounted to 6.4% in June, up 0.3% from their previous reading. Germany, which also fell into recession in June, is headed for stagflation, an economist’s worst nightmare.
Germany could lose its status as the EU’s economic powerhouse, which could spell disaster for the bloc as a whole. Berlin needs to assess its situation and react accordingly.
NVIDIA rally stopped
In other market news, the NVIDIA rally was over last week as the Biden administration announced a new crackdown on chip exports to China.
NVIDIA, the world’s leading chip maker, passed the $1 trillion evaluation in June as AI research demanded more advanced microchips.
Even though the AI craze has dominated the market for quite some time, NVIDIA experienced backlash when it was prohibited by the White House from selling its A800 chip to Chinese companies.
China represents 1/5 of NVIDIA’s market share as advanced chips are used in every digital device. Critically, however, chips are also a crucial component of modern military equipment, and the United States must prevent China from closing the gap between their armies too much.
The United States is by far the best military in the world, but China is determined to challenge its hegemony. Whether the confrontation will escalate to military conflict or not, the United States does not want to take any chances.
