Our Multi-Asset Solutions team produce a weekly market recap which aims to summarise the previous week’s major events and developments that may impact markets. They try to include points that may aid you in your decision making or conversations with clients. This is supplemented by a market data sheet, offering a summary of financial market performance. Last week’s summary is below. 





Economic and political backdrop



The US


The May consumer price index (CPI) release was the focus of last week’s economic data. The report showed that headline inflation was 8.6% from a year earlier, topping consensus estimates. May’s headline CPI was also higher than April’s 8.3% reading, disappointing investors who had been looking for price increases to slow. Core CPI, which excludes food and energy, climbed 6% from a year ago, also faster than consensus estimates.

In a sign that the labour market may be loosening, weekly initial jobless claims increased, hitting their highest level since January. However, the acceleration in headline inflation is keeping pressure on the Federal Reserve (Fed) to raise rates aggressively and leading to anticipation of more hikes of 50 basis points (0.50%) each – rather than 25 – into the second half of the year. The next Fed policy meeting is on 14-15 June.








The European Central Bank (ECB) signalled that it plans to start raising its key deposit rate, which stands at -0.50% currently, by 0.25% in July to contain record inflation. However, the central bank added: “If the medium-term inflation outlook persists or deteriorates, a larger increment will be appropriate at the September meeting.” The ECB also confirmed it would end net purchases of bonds under its asset-buying programme on 1 July.

The ECB lowered its outlook for economic growth and raised its projection for inflation, which it now sees staying above the 2% target over the three-year forecast period. Inflation is expected to accelerate to 6.8% in 2022 – compared with 2.6% last year – before declining to 3.5% in 2023 and 2.1% in 2024. The ECB called for the economy to expand 2.8% this year, down from its previous forecast of 3.7%. The central bank’s projections show economic growth slowing to 2.1% in 2023 and 2024.

Seasonally adjusted German industrial orders fell for a third consecutive month in April, declining 2.7% sequentially, amid uncertainty caused by the Ukraine conflict and weaker demand. The revised March data showed a month-over-month decline of 4.2%.





The UK



British Prime Minister Boris Johnson saw off a challenge to his leadership, winning 59% of votes in a ballot held by the members of parliament of his Conservative party. Johnson has come under fire for holding parties in the prime minister’s office during coronavirus lockdowns in the UK.







Late Friday, senior officials from the Bank of Japan (BoJ), Japan’s Ministry of Finance and the country’s Financial Services Agency issued a joint statement voicing concerns about rapid yen weakening. Earlier last week, BoJ Governor Haruhiko Kuroda told a Financial Times conference that the exchange rate was not a target of any central bank, including the BoJ. He also said that, with Japan’s economic growth still below pre-pandemic levels, the BoJ must extend its support for economic activity by continuing with current monetary easing. While Kuroda conceded that monetary easing had not been fully successful, given that the BoJ had not achieved its 2% inflation target in a stable and sustainable manner (with current inflationary pressures largely attributable to rising energy prices), he gave assurances that the target is achievable in the coming years.

Growth in Japan’s producer prices slowed in May to 9.1% from a year earlier compared with 9.8% in April, suggesting that the government’s efforts to ease the pain of rising prices, including increased fuel subsidies, were having some impact.

Prime Minister Fumio Kishida’s Cabinet approved plans for the government’s fiscal and economic policy programme, which had initially been presented as a “new form of capitalism” with a strong focus on income redistribution. The plan has now shifted to emphasise policies designed to raise economic growth, with redistribution initiatives such as a higher capital gains tax excluded. Alongside investment in human capital, science and technology, start-up companies and digital transformation, an important focal point will be green transformation – including decarbonisation efforts – to boost Japan’s economic growth prospects over the medium term.








Exports grew at a double-digit pace and imports expanded for the first time in three months in May, as factories reopened and supply chain issues improved. China’s trade surplus rose to a higher-than-expected USD 78.76 billion last month, up from USD 51.12 billion in April. The private Caixin services purchasing managers’ index (PMI) rose to 41.4 in May from April’s 36.2 reading. Despite the monthly improvement, the gauge remains well below the 50-point mark separating growth from contraction as coronavirus lockdowns and other restrictions weighed on the services sector.

New bank lending in China rose more than expected in May, and broader credit growth also quickened, reflecting policymakers’ efforts to reverse the country’s coronavirus-driven slump. Factory-gate inflation cooled to its slowest pace in 14 months in May, and consumer inflation also stayed subdued, raising expectations that China’s central bank will roll out more stimulus to spur the economy.

In coronavirus news, last weekend, Shanghai planned to lock down millions of residents for mass coronavirus testing over the weekend, days after the last lockdown was lifted on 1 June. Meanwhile, Beijing shut down entertainment and internet venues in two of the capital’s largest districts. The latest restrictions came after a handful of community cases were found in both cities, reflecting the Chinese government’s determination to eradicate the virus through a zero-tolerance approach even as other countries try to live with the virus.








Last week the Reserve Bank of Australia (RBA) delivered another unexpected move of a 50 basis-point interest rate hike, while the market was expecting 25 basis points. The Bank noted that inflation would be higher than expected due to external and domestic reasons. Policymakers were not too concerned about the short-term economic impact, pointing towards strong balance sheets to absorb the higher interest costs. The RBA is clearly following the lead of its peers of early and fast hiking cycle and a quick return to policy normalisation.












Equity Markets



Last week, MSCI All Country World Index (MSCI ACWI) lost -4.4% (-16.9% YTD) – its worst weekly decline since October 2020.

In the US, the S&P 500 finished with steep losses of -5.0% (-17.6% YTD) despite some early-week strength. The equity market turned south on Thursday afternoon, and the selling accelerated on Friday following the release of hotter-than-expected CPI data for May. At the beginning of the week, trading volumes were light, and volatility measured by the Chicago Board Options Exchange (CBOE) Volatility Index, known as the VIX, was relatively low, but volatility turned sharply higher at the end of the week.

Oil prices climbed for most of the week before falling on Friday, finishing the week modestly higher at USD 122.0 for a barrel of Brent, supporting energy sector stocks to some degree. Losses in the tech-heavy Nasdaq Composite were worse than in the broad market as higher interest rates reduced the appeal of companies that may not generate meaningful earnings until well into the future. Value stocks held up better than growth stocks, as did small-caps relative to large-caps. Russell 1000 Growth returned -5.7% (-26.6% YTD), Russell 1000 Value -4.4% (-9.2% YTD) and Russell 2000 -4.4% (-19.4% YTD).

In the latest sign of major retailers struggling with mismatches of supply and demand, Target guided profit estimates lower on Tuesday for the second time in three weeks. The company cited large stockpiles of goods like electronics and patio furniture that have fallen out of favour with consumers, forcing the retailer to discount them, as well as higher transportation and energy costs. However, Target announced on Friday that it will increase its annual dividend by 20%.

In Europe, the Euro Stoxx 50 fell sharply -4.9% (-14.0% YTD) after the ECB suggested that it may increase interest rates at a faster-than-expected pace after July, when it plans to end its ultra-loose monetary policy. Major indexes were weaker. France’s CAC 40 lost -4.5% (-11.3% YTD), Germany’s DAX pulled back -4.8 (-13.4% YTD) and Italy’s FTSE MIB dropped -6.7% (-15.1% YTD), amid concerns about the country’s ability to manage its national debt load without central bank support. Switzerland’s SMI was down -3.9% (-11.6% YTD). The euro was weaker against the US dollar, ending the week at 1.05 USD per EUR, down from 1.07.

In the UK, the FTSE 100 declined -2.8% (0.9% YTD) and the FTSE 250 slid -2.9% (-15.2% YTD). The British pound depreciated against the US dollar, ending the week at 1.23 USD per GBP, down from 1.25.

Stocks in Japan registered moderate gains for the week. The Nikkei 225 firmed 0.2% (-2.4% YTD), the broader TOPIX was up 0.5% (-1.3% YTD) and the TOPIX Small Index added 0.1% (-2.9% YTD). Sentiment was supported by Cabinet Office data showing that Japan’s economy shrunk by an annualised 0.5% over the first quarter of the year, less than the initial estimate of a 1.0% contraction. Japan’s reopening to tourism provided a further boost. In the fixed income markets, the yield on the 10-year Japanese government bond rose to 0.25% from 0.23% at the end of the prior week. Meanwhile, yen weakness continued to provide a boost to Japan’s exporters – the currency finished the week at JPY 134.4 against the US dollar (from the previous week’s JPY 130.9), continuing to hover around two-decade lows.

In Australia, the S&P ASX 200 lost -4.2% (-4.4% YTD). The RBA decision did not help the local stock market, which already faced a global risk off tone last week on further signs of a global economic slowdown. The stock market faced its worst weekly return since April 2020. The financial sector was particularly weak with economists forecasting a potential impact of higher rates on consumer spending and mortgage reimbursements. The government bond yield curve moved higher, with a bear flattening move. The Australian dollar dropped due to the weak risk appetite.







Emerging Markets and Other Markets



MSCI Emerging Markets Index returned -0.5% last week (-13.5% YTD), with a positive contribution to performance from the stock market of China and a negative contribution from those of Taiwan, South Korea, India and Brazil.

Stocks in China rallied amid hopes for looser monetary policy and signs that Beijing was easing its years long crackdown on the technology sector. The broad, capitalisation-weighted Shanghai Composite Index rose 3.8% (-13.8% YTD) and the blue-chip CSI 300 Index, which tracks the largest listed companies in Shanghai and Shenzhen, climbed 3.0% (-9.3% YTD) in its biggest weekly gain since February 2021, according to Reuters.

China’s regulators are ending their probe into DiDi Global and will restore the ride-hailing giant’s mobile apps back on domestic app stores, The Wall Street Journal reported. Separately, media outlets reported that authorities are in talks about reviving the initial public offering for Ant Group, which was pulled in December 2020 after the fintech company’s founder Jack Ma made critical comments about China’s financial regulators. Both developments signalled that Beijing is dialling back its regulatory clampdown on the tech sector that started in late 2020. In a further sign of policy relaxation, China’s gaming regulator granted publishing licenses to 60 online games, the biggest approval of titles for computers and smartphones since July 2021.

The yield on China’s 10-year government bond ended the week at 2.82%, roughly unchanged from a week ago, as investors awaited US inflation data that could offer insight into the pace of the Fed’s interest rate increases. A faster pace of tightening in the US would narrow the interest differential on Chinese and US government debt yields, reducing the attractiveness of buying higher-risk Chinese assets.

In Hungary, assets remained under pressure last week amid expectations that the central bank will need to continue raising interest rates in an attempt to get inflation under control. During the week, the government reported that headline inflation in May was 10.7%. This was higher than expected and higher than the 9.5% reading for April.

According to EXM Capital credit analyst Peter Morozov, the overall inflation trend still has strong momentum, as indicated by a 12.2% year-over-year core inflation rate through May versus 10.3% for the year ended in April. He expects inflation to continue rising to the 13.0% to 14.0% range by the end of the summer, which would prompt the central bank to continue pushing interest rates higher, particularly if the forint weakens on foreign exchange markets.

As for the implications for fiscal policy, Morozov believes that existing price ceilings for food and fuel – which are scheduled to end on 1 July – will likely to be extended into 2023. Nevertheless, he believes that the fiscal consolidation trend will continue and that the government will not alter its fiscal targets. With both fiscal and monetary policy in Hungary tightening, it remains to be seen if the authorities will succeed in reducing inflation pressures and avoiding a further economic overheating.

In Chile, the S&P IPSA Index returned -2.1% (21.6% YTD). On Tuesday, Chilean central bank officials, in aunanimous decision, decided to raise the key interest rate by 75 basis points, from 8.25% to 9.00%. This rate increase was generally in line with expectations, although some economists anticipated a larger, 100-basis-point increase.

According to EXM Capital emerging markets sovereign analyst Marek Bielec, the statement issued after the policy meeting was hawkish given better-than-expected economic growth and recent inflation readings that surprised to the upside. Nevertheless, the rate increase was smaller than the 125-basis-point jump at the previous policy meeting – which Bielec believes is because monetary policy has become increasingly restrictive. He believes the central bank is getting close to the point where policymakers will decide to pause their rate increases and watch for signs that the economy and inflation are moderating.






Fixed Income Markets



Last week, Bloomberg Global Aggregate Index (hedged to USD) returned -1.4% (-9.2% YTD), Bloomberg Global High Yield Index (hedged to USD) -2.2% (-11.2% YTD) and Bloomberg Emerging Markets Hard Currency Index -1.7% (-14.9% YTD).

US Treasury yields increased, with yields on short- and intermediate-term maturities climbing sharply after the CPI release. Hawkish policy signals from the ECB and soft demand for the Treasury Department’s sale of new 10-year notes helped drive US government debt yields higher. The 10-year Treasury yield rose 22 basis points to 3.16% from 2.94% (165 basis points higher YTD).

Core eurozone government bond yields jumped, mostly in response to the ECB policy meeting, which markets perceived as more hawkish. Over the week, the German 10-year bund yield rose 24 basis points to 1.51% from 1.27% (up 170 basis points YTD). Peripheral eurozone government bond yields broadly tracked core markets.

The UK 10-year gilt yield ended the week 30 basis points higher, up from 2.15% to 2.45% (148 basis points higher YTD).

The US investment-grade corporate bond market experienced a glut of new issuance. The primary calendar exceeded weekly expectations, and the new deals were met with generally solid demand. Later in the week, a risk-off tone gripped the market, and investment-grade corporates traded lower alongside equities. The high yield bond market experienced lower-than-average trade volumes as lower-quality bonds within the high yield universe slightly outperformed.