Indices

US equities had a relatively volatile week, with inflation (which rose again above expectations) influencing the markets for the first three days. However, Friday’s rally eventually prevented significant losses thanks to better-than-expected retail sales. Technology titles thrived thanks to good results from Apple, while the financial sector also did well on Friday thanks to good quarterly results from Citigroup.

European equities also lost ground during the week, dragged down mainly by fears of the ECB’s planned interest rate hike. This, combined with a possible disruption in gas supplies from Russia, could spell recession. The pan-European STOXX Europe 600 Index ended 0.80% lower, Germany’s DAX 40 pulled back 1.16%, France’s CAC 40 gained 0.05% and the UK’s FTSE 100 declined 0.52%.

Forex

Fears of a recession and rapid rate hikes in the US drove the EURUSD pair to parity, but the euro strengthened slightly after reaching the level. According to Bank of France Governor François Villeroy de Galhau, the EURUSD’s movement is not caused by euro-related fundamentals but rather occurred because the US dollar is considered a safe haven in times of uncertainty and is therefore strengthening.

The Japanese yen has also fallen to a new 24-year low against the US dollar, but this is not surprising. Japan remains the exception, and Bank of Japan Governor Haruhiko Kuroda reaffirmed the central bank’s intention to continue with its easy monetary policy and take further steps to ease it if necessary.

Macro

German ZEW Indicator of Economic Sentiment fell to -53.8 in July from -28 in June, the lowest reading since December 2011 and well below the forecast of -38.3. The economic outlook deteriorated due to concerns about the energy supply in Germany, the ECB’s planned interest rate hike and further pandemic-related restrictions in China.

Germany’s annual inflation rate fell for the first time in five months to 7.6% in June, thanks to a fuel discount. However, energy price growth slowed slightly, as did utility costs, while food prices rose the fastest since 1992. Energy product prices have also increased due to the war in Ukraine.

The British economy unexpectedly grew by 0.5% in May after a 0.1% contraction in April, which could help the economy avoid a second-quarter slump.

Inflation in the US rose to 9.1% year-on-year, the highest since 1981. On a month-on-month basis, prices rose by 1.3% in June, mainly due to a rapid rise in fuel prices. Thursday’s producer price index rose 1.1% month-on-month in June, the most since March, but price growth across sectors was fairly mixed. Energy and fuel prices rose the most. Year-on-year, producer inflation accelerated to 11.3%, the largest increase since a record 11.6% in March.

Retail sales rose 1% month-on-month in June, beating forecasts of a 0.8% gain and recovering from a downwardly revised 0.1% drop in May. It points to the fact that Consumers appeared more resilient in the face of higher prices than expected. Core retail sales (excluding autos, gasoline, construction and food services) rose 0.8% after a 0.8% decline in May.