WEEKLY MARKET RECAP
Your weekly global financial market newsletter
17 July 2023
- U.S. Treasury Secretary Janet Yellen expressed eagerness to collaborate with China on debt restructurings for poorer countries while emphasising the need for reforms in multilateral development banks before considering capital increases. Yellen’s visit to Beijing improved the U.S.-China relationship, but concerns about China’s trade practices remain. U.S. corporations seek a favourable investment environment in China. Yellen affirmed the U.S.’ commitment to restrict Russia’s access to military equipment related to the invasion of Ukraine. At the G20 meeting, Yellen advocated for full participation in debt restructurings and faster debt treatments. She called for a debt restructuring guide and stronger financial footing for the IMF’s Poverty Reduction and Growth trust. Yellen outlined steps to enhance the World Bank and other development banks, emphasising the importance of addressing global challenges. She reiterated the commitment to implement a global corporate minimum tax deal and stated that negotiations on technical details were nearing completion.
- European Union finance ministers unanimously approved additional funds for Ukraine through a top-up of its long-term budget, showing support for continued financial assistance. However, differences persisted over other spending priorities, which could potentially delay or hinder proposed aid to Kyiv. The European Commission proposed increasing the EU’s budget until 2027 by 66 billion euros, with 17 billion euros allocated for Ukraine along with 33 billion euros in loans. Some member states expressed concerns about allocating additional funds elsewhere, citing fiscal constraints. Polish finance minister Magdalena Rzeczkowska highlighted the need for support to be extended to Ukraine’s neighbouring countries that have accepted refugees. The situation will be further analysed to determine the next steps.
- Ripple is optimistic that U.S. banks will show interest in using its XRP cryptocurrency for cross-border transactions following a partial victory in its legal battle against the SEC, according to General Counsel Stu Alderoty. The judge ruled that XRP itself is not necessarily a security, which is significant for the digital asset industry. However, the judge also determined that sales of XRP to institutional buyers by Ripple qualify as unregistered securities sales. Despite this, Ripple plans to engage with American financial institutions about adopting its On-Demand Liquidity (ODL) product that utilises XRP for money transfers in the third quarter.
Indices
Stocks experienced a week of robust gains as investors reacted positively to data indicating a slowdown in inflation. Although the S&P 500 Index closed the week 6.50% below its all-time high, the Nasdaq Composite posted even stronger gains, remaining 12.94% below its peak. Casino operators, regional banks, and asset managers were among the top-performing sectors within the S&P 500, while certain pharmaceutical firms and the consumer staples sector lagged behind. The STOXX Europe 600 Index also saw significant gains, rising 2.95% in local currency terms, marking its largest weekly increase in about three-and-a-half months. The easing inflation in the US hinted at a potential peak in interest rates, while China’s continued support for the property sector raised hopes for additional economic stimulus. Major European stock indices, including Germany’s DAX and the UK’s FTSE 100, recorded notable advances with gains of 3.22% and 2.45% respectively.
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US30 +2.29% |
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US100 +3.52% |
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US500 +2.42% |
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GER40 +3.22% |
Commodities
China’s post-pandemic economic bounce is losing steam as weak domestic and international demand, coupled with a slump in the property market, hinders the country’s recovery. This poses a challenge for oil investors hoping for a summer rally. Chinese refiners and regulators may have underestimated the strength of China’s recovery and the global energy market. The decline in exports and cautious consumer behaviour, driven by years of strict COVID measures and regulatory curbs, contribute to economic uncertainty. If the anticipated demand surge fails to materialise, Chinese refiners may need to reduce production, impacting global oil prices in late 2023. Gold has experienced a subtle upward movement, despite other commodities, particularly oil, experiencing significant price surges. The recent release of inflation data indicating a more restrained trend has led to speculation that the Federal Reserve may scale back its use of interest rate adjustments earlier than anticipated. In contrast, silver, which typically follows the lead of gold, has outshined its more precious counterpart by recording substantial gains this week.
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Gold +1.62% |
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Silver +8.14% |
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BRENT +1.41% |
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NATGAS -1.56% |
Forex
The U.S. dollar rebounded on Friday after recent declines, but, overall, it remained on a downward trajectory as the Federal Reserve is expected to conclude its rate hike cycle due to easing inflation. The dollar Index rose slightly to 99.923, recovering from a 15-month low. However, it was still on track for its largest weekly decline since November. Weakening inflation was a contributing factor to the dollar’s decline, as recent data showed minimal growth in U.S. producer prices and modest consumer price increases. Despite some correction, markets remain sceptical of the Fed’s plans for rate hikes. The euro touched a 16-month high against the dollar, while the dollar gained against the Swiss franc and the Japanese yen. Traders are awaiting the Fed meeting on July 26 for further guidance.
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EUR/USD +2.36% |
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USD/JPY -2.33% |
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GBP/USD +1.99% |
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USD/CAD -0.43% |
Crypto
Altcoins experienced a week of rallies, driven by Ripple’s victory against the SEC and news of the upcoming Polygon 2.0 rollout, diverting attention away from Bitcoin and Ethereum. Bitcoin saw a modest 3% gain and traded at $30,287, while Ethereum performed better with a 6.6% rise, reaching $2,000 for the first time since May. The release of the latest CPI report, indicating an expected inflation decrease in the US, did not significantly impact investor sentiment towards the top cryptocurrencies. However, Polygon’s surge following network growth and the announcement of Polygon 2.0, along with Ripple’s legal victory, caused significant price increases for altcoins. Crypto’s total market cap surged 6%, reaching $1.3 trillion, with XRP leading the way with a 66% spike in price. Solana rose by 33%, Polygon by 24%, and Cardano by 22%.
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BTC +1.03% |
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ETH +3.93% |
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LTCUSD -0.89% |
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XMRUSD +0.91% |
Macro
UK:
According to the Office for National Statistics, the UK economy contracted by 0.1% in May, following a 0.2% expansion in April, defying economists’ expectations of a 0.4% contraction. However, on a rolling three-month basis, gross domestic product (GDP) grew by 0.1%. In terms of wages, excluding bonuses, UK wages experienced a record annual growth rate of 7.3% in the three months up to May. However, the labor market showed signs of easing, with the jobless rate increasing from 3.8% to 4%.
EU:
The minutes from the European Central Bank’s June meeting revealed support for further rate increases due to concerns over persistently high inflation. The minutes emphasized the need to communicate that monetary policy should continue until inflation returns to the target level. Policymakers agreed on a “meeting-by-meeting approach” as interest rates approached a possible peak.
US:
The release of consumer price index (CPI) inflation data on Wednesday was a significant event of the week. Both headline and core inflation rose by 0.2% in June, slightly below expectations. The annual increase in headline inflation slowed to 3.0%, the slowest since March 2021, while core inflation slowed to 4.8%, the slowest since October 2021. Producer price index (PPI) inflation data indicated even more encouraging results, with headline producer prices nearing deflation territory. Other data, such as the University of Michigan’s consumer sentiment gauge and weekly jobless claims, suggested a potential “soft landing” for the economy as inflation cooled and consumer sentiment improved.
What to watch out for this week
- In June, United States retail sales are predicted to maintain a moderate growth rate of 0.4%, while industrial production is expected to contract by 0.1% for the second consecutive month. Building permits, housing starts, and existing home sales are also anticipated to decline during the same period. Other economic indicators to watch include homebuilder sentiment, business inventories, capital flows, and regional activity indices such as the NY Empire State Manufacturing Index and the Philadelphia Fed Manufacturing Index.
- In Europe, the economic calendar is expected to be relatively quiet, with a focus on final inflation rates. Preliminary figures suggest a slowdown in consumer price growth in the Euro Area, with headline figures reaching a 17-month low of 5.5%. However, core inflation has shown an increase. The flash consumer survey will also provide insights into confidence levels, which are expected to improve slightly, reaching a new high since February 2022. In Germany, producer prices are projected to decline for the eighth time in the past nine months.
- In the United Kingdom, CPI figures for June are expected to reveal a decrease in annual inflation to 8.2%, following an unexpected unchanged rate of 8.7% in the previous month. The core index is anticipated to remain at its highest level since March 1992. Additionally, retail sales are projected to continue their upward trajectory for a third consecutive month, reflecting strong consumption. Investors will also closely monitor Gfk Consumer Confidence and public sector net borrowing data.
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