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The Long and Short of it, week ending 10 June 2022

Posted: 14 June, 2022

Topic: Telecoms , Financials , Basic Materials , Energy , Healthcare , Industrials , Technology

Publication Type: Market Commentaries

Another volatile week for U.S. stock markets with all three major indexes losing 4.5% or more. Up close to a percent through Tuesday on hopes a strong economy (inspired by a stronger-than-expected Non-Farm Payroll Report on Friday of the previous week) could weather anticipated Fed rate increases, markets reversed course beginning Wednesday precipitated by earnings warnings from retailers, banks and some large growth companies. Thursday’s ECB announcement that it would raise rates at least 50bps by September added fuel to the fire pushing both the S&P 500 Index almost 2.5% lower and Nasdaq Composite Index almost 3% lower. Markets slid even further Friday following a higher-than-expected CPI release, increasing expectations of an even more aggressive Fed pushing the economy into a recession. Friday’s University of Michigan’s Consumer Sentiment release registered an all-time low added to selling pressure. The 10-year U.S Treasury rate rose 22bps last week after rising 20bps the previous week and the U.S. dollar moved markedly higher, strengthening almost 2%. This time rising 10-year real rates accounted for almost all of the increase with 10-year inflation expectations increasing only 2bps. At week’s end, the S&P 500 Index fell 5.1% to 3,900.86, the Nasdaq Composite Index lost 5.6% to close at 11,340.02, the Dow Jones Industrial Average decreased 4.6% to 31,392.36, the 10-year U.S. Treasury rate rose 22 bps to 3.16% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 2.0%.

European stock markets fared similarly to U.S. stock markets last week though did not fall quite as sharply. Both the STOXX 600 and FTSE 100 Indexes moved 1% higher Monday, supported by strong performance in mining and gas and oil stocks. Those gains were partially reversed Tuesday and Wednesday on increased concerns of slowing economic growth spurred by the UK’s BRC reporting Tuesday that retail spending fell by a much larger-thanexpected 2.1% and by uncertainty surrounding Thursday’s ECB meeting. The ECB’s announcement Thursday that it would raise rates 25bps in July and most likely another 25bps in September together with its markedly higher inflation projections pushed both the STOXX 600 and FTSE 100 Indexes approximately 1.5% lower. Market moved sharply lower again on Friday following a higher-than-expected U.S. CPI release and on news China was reinstituting some Covid-related restrictions. The FTSE 100 Index outperformed the STOXX 600 Index, benefiting from a weaker British pound. 10-year interest rates jumped again in both the UK and Germany with the 10-year UK government rate increasing 29bps and the 10-year Bund rate rising 23bps. At week’s end, the FTSE 100 Index fell 2.9% to 7,317.52, the STOXX 600 Index dropped 3.9% to 422.71, the 10-year UK government rate rose 29bps to 2.45%, and the euro and the British pound weakened 1.9% and 1.4%, respectively, both with respect to the U.S. dollar.