The Federal Reserve, the European Central Bank, and the Bank of Japan all released data last week. What was its effect on markets?
The last full week of July has been full of macroeconomic data, from Microsoft and Meta’s quarterly earnings to, of course, the Federal Reserve and European Central Bank meetings. On Friday, the Bank of Japan too released important data shaking world markets.
But first, let’s look at some numbers:
- The S&P 500 closed the week at +0,85%; the Dow Jones at +0,74% and the Nasdaq Composite also continued its rally closing at +1,64%;
- In Europe, Frankfurt closed at +1,87%, London at +0,40%, and Milan at a decent +2,54%;
- Finally, the Tokyo Nikkei ended the week slightly in the green at +0.27%, Hong Kong at a whopping +5,56% and Shanghai at +3,75%.
The hawks are coming back
The most important market movers this week have been the monthly meetings of three of the most important central banks in the world: the Federal Reserve, the European Central Bank, and the Bank of Japan.
The Federal Reserve started hiking interest rates again after a pause in June. They cited, as always, high core inflation as the main reason.
Markets hope this is the last hike for the foreseeable future, but Fed chairman Jerome Powell stated that monetary decisions are taken meeting after meeting. Another hike (the 12th since March 2022) is definitely possible in September.
The European Central Bank too raised interest rates. The European Union and the United Kingdom are gripped in awful stagnation, with the Eurozone falling into recession and the UK to likely follow soon.
ECB governor Christine Lagarde did not provide any frame of reference for rate stabilization, let alone rate cuts.
Finally, the Bank of Japan continues its unique low-interest rates approach. To keep monetary policy flexible, BOJ president Kazuo Ueda increased the YCC curve on Friday, bringing to 0.5% the allowed difference between long-term bond yields and interest rates.
American GDP is better than expected
Another crucial economic data this week was the release of American Gross Domestic Product for the second quarter of 2023. GDP in the United States grew more than expected by 2.4%, flying over the 1.7% forecast.
The American economy shows to be very resilient to high interest rates and will likely pave the way for future hikes, as we mentioned. Nevertheless, residential investment dropped, signaling a weaker housing market.
The United States appears now as the only major economic area where recession is avoided. Even China, which started with a better quarter than expected, is now lagging behind its rival across the Pacific.
Will the United States manage to keep global dominance?
