Weekly Market Wrap 05/08/2022

The Bank of England delivered the UK’s biggest rate hike in 27 years this week, whilst issuing a very concerning outlook for the future of the UK economy. Geopolitical tensions rise as the US and China clash over Speaker Pelosi’s visit to Taiwan. OPEC+ disappoints President Biden with only a minuscule increase in oil production. US jobs data initially pushed markets lower on Friday as non-farm payrolls came in at more than double the 250,000 estimates, whilst unemployment showed an unexpected drop. Ships carrying vital commodities have started departing from Ukraine once again, after a deal was struck with Russia.  

US Markets 

The S&P 500 is currently ending the week up 2.80% at 4,072 and the NASDAQ is up 2.78% at 12,162. Tensions between the US and China began to heighten towards the end of the week after China imposed sanctions on House of Representatives Speaker Nancy Pelosi and her immediate family after a visit to Taiwan. China called the visit “vicious” and “provocative” and responded by staging its largest ever military drills that included missile launches around Taiwan. US Secretary of State Anthony Blinken responded by saying these actions were extreme and disproportionate. Futures fell sharply on Friday ahead of the market open after stronger than expected jobs data fueled the argument for continued higher rate hikes by the Federal Reserve. Non-farm payrolls data came in at 528,000, well ahead of the 250,000 estimates, whilst unemployment dropped from 3.6% to 3.5%, reinforcing the case that the underlying US economy is still strong and the economy could withstand further large rate hikes.  

UK Market   

The UK market ended the week higher. The Bank of England raised rates by 50 basis points this week as economists had expected, rating UK rates to 1.75%, the highest level seen since 2008. The central bank continued their fight against inflation, however warned that UK inflation is now expected to reach 13% in the final quarter of 2022, up from a previous estimate of just 4%. Elevated levels of inflation are expected to remain throughout 2023 and unemployment is forecast to rise next year. The MPC report also warned that the UK is expected to enter a recession before the end of 2022 and stated that “ The MPC will take the actions necessary to return inflation to the 2% target” 

European Markets   

The Euro Stoxx 50 rose 2.96% to 3,702, the DAX was up 1.38% at 13,437 whilst the CAC 40 was up 3.69% to 6,445. Thanks to a deal brokered by Turkey and the United Nations, ships have begun leaving Ukrainian ports once again, raising hopes that the global food crisis could begin to ease. The cost of living crisis that has plagued western Europe for much of this year has now spread to eastern Europe. Slowdowns in retail sales as well as consumer confidence indicators have begun to appear in Europe, whilst inflation rates in a number of eastern European countries are showing double-digit readings. 

Fixed Income  

Yields on the US 10-Year Treasury rose to 2.79% on Friday, after significantly better than expected US jobs data pushed rate hike expectations higher.   

Commodities 

Brent Crude fell 14% this week to $94 per barrel as markets fear that an economic slowdown will reduce oil demand. OPEC+ agreed a very small increase in output this week, of just 100,000 barrels per day, despite Joe Biden’s trip to the Middle East in an attempt to convince producers to significantly raise output.  

Gold gained this week as investors headed towards safe haven assets as US-China tensions increased, as well as growing belief of a recession in the near future. 

The Week Ahead   

Monday – UK Retail Sales 

Tuesday – US Nonfarm Productivity 

Wednesday – US and China CPI 

Thursday – US Initial Jobless Claims 

Friday – UK GDP 

*Price changes as of last week’s close unless stated otherwise.