In a holiday shortened trading week, the S&P 500 lost 1.4%, snapping a five-week winning streak, while the Nasdaq fell 1.4% to break its eight-week run of gains. Small caps underperformed with the Russell 2000 down 2.9%. In his semi-annual testimony to Senate lawmakers, Federal Reserve chairman Jerome Powell said that the central bank’s campaign to bring down inflation still had a long way to go. He also indicated that two more quarter-point rate hikes were likely, although futures markets are only pricing in a July hike. The mood was also dampened by the latest economic data, with the S&P Global’s manufacturing PMI hitting its lowest level since December in June, while jobless claims were at their highest level since October 2021. The yield on the 10-year Treasury note ended at 3.737%, slightly lower for the week.
The pan-European STOXX 600 was down 2.9% in its worst week since March. The economic picture grew gloomier, with the eurozone manufacturing PMI for June slipping further into contractionary territory and even the services sector was showing signs of stalling. Focus was also on central bank moves, where the Bank of England raised its key interest rate by half a percentage point to 5% in its thirteenth consecutive hike. This came a day after UK headline inflation unexpectedly held steady. Norway’s central bank also hiked rates by half a percentage point to 3.75%, while the Swiss National Bank opted for a quarter percentage point hike to 1.75%, although it signalled that more rate rises were likely.
After a 10-week winning streak, the Nikkei 225 was unable to extend it to 11 weeks and ended 2.7% lower. The Japanese index has been on a tear recently so part of the losses were due to profit taking while Japanese inflation data also weighed on sentiment. Chinese stocks had a holiday shortened week but still saw losses, with the Shanghai Composite down 2.3% and the Hang Seng plunging 5.7%. There are growing concerns on China’s post-Covid rebound, with investors still awaiting stimulus from Beijing.
Latin American currencies were fairly subdued for the week but saw their fifth week of gains. The Bank of Mexico held its benchmark interest rate at 11.25%, as did Chile. Brazil’s central bank also kept its rate steady at 13.75% and took a more dovish tone. Finally, the Turkish central bank did a U-turn and raised its one week-repo rate from 8.5% to 15%. This was less than expected and pushed the lira to a fresh low against the dollar.
The value of your investment can fall as well as rise in value, and the income derived from it may fluctuate. You might get back less than you invest. Currency exchange rate fluctuations can also have a positive and negative affect on your investments. Please note that EFG Harris Allday does not provide tax advice. Past performance is not a reliable indicator of future performance.
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