{"id":6738,"date":"2022-07-20T08:00:30","date_gmt":"2022-07-20T07:00:30","guid":{"rendered":"https:\/\/sarasinandpartners.com\/za\/?p=6738"},"modified":"2022-07-19T15:55:55","modified_gmt":"2022-07-19T14:55:55","slug":"the-week-in-markets-20-july-2022","status":"publish","type":"post","link":"https:\/\/sarasinandpartners.com\/za\/think\/the-week-in-markets-20-july-2022\/","title":{"rendered":"The week in markets – 20 July 2022"},"content":{"rendered":"

Welcome to the weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last few weeks.<\/h3>\n

US inflation continues to surge past forecasts<\/strong><\/h3>\n

US inflation continued to surge, reaching 9.1% in June versus the previous year, the highest level since 1981 and much higher than the 8.8% forecast.<\/p>\n

Adding to investors\u2019 concerns was the broad-based nature of the rise: the six-month annualised inflation figure is above 6% for 42% of the basket of goods measured. Energy prices are no longer the only driver \u2013 food prices have increased by 18% since 2019, raising questions about how quickly prices can come back down.<\/p>\n

A closer look at what is now driving inflation highlights the pressures that households are facing. Utility bills rose 3.2% and rent or rental equivalents saw the biggest increase in decades, rising by another 0.7% over the month, to a median increase of 5.5% over the year. Rental increases were particularly pronounced in cities, with some metropolitan areas seeing a 16.2% increase over the year.<\/p>\n

Higher-than-expected inflation in May and June has increased the likelihood of a significant increase in US interest rates at this month\u2019s Federal Reserve (Fed) meeting. Some economists now expect a 1% increase, but the Fed continues to signal a 0.75% increase.<\/p>\n

Other data from the US paints a more positive picture, with US retail sales rising 1% month-over-month in June to beat the 0.8% forecast. Meanwhile, the University of Michigan\u2019s consumer sentiment index saw medium-term inflation expectations come off their highs to a one-year low of 2.8%.<\/p>\n

Chinese GDP contracts more than expected in Q2<\/strong><\/h4>\n

China\u2019s economy contracted by more than expected in Q2 as the Dynamic Zero-COVID (DZC) policy impacted growth once again. The 2.6% contraction was around a quarter of the 10% fall in GDP seen at the height of the pandemic in China, indicating just how severe the ongoing restrictions have been. Some areas have fared particularly badly, such as Shanghai, where the local economy fell by more than 10% over the quarter.<\/p>\n

Given the regional lockdowns, the largest impacts were seen in consumption and mobility, with consumer expenditure detracting 0.9% from the annual figure. However, there were signs of improvement towards the end of the quarter when lockdowns were eased, allowing retail sales to rise by 3.1% year-on-year in June. Industrial production also rose by 3.9%, partly thanks to government support packages that focus on infrastructure.<\/p>\n

Whilst there are signs of improvement, the effect of the DZC on GDP means that China will probably fall short of its 5.5% annual growth target. Furthermore, the BA5 COVID variant is proving hard to contain, and almost 20% of the economy is now back under restrictive measures. It seems improbable that the DZC policy will be changed, suggesting further downside risks in the second half of this year.<\/p>\n

China\u2019s highly leveraged property market is giving renewed cause for concern following reports that some homeowners have suspended mortgage payments on uncompleted building projects. This follows issues at the end of last year when developers such as the property giant Evergrande struggled to repay debt because of regulatory changes and a downward trend in property prices. Whilst there are currently only 300 projects affected by the mortgage revolt there is a clear risk to overall market sentiment. The combination of weak GDP figures and an ailing property market makes it increasingly likely that the Chinese government will increase economic stimulus and take steps to manage risk in the property sector.<\/p>\n

UK GDP returns to growth following a disappointing run<\/strong><\/h3>\n

The UK economy defied expectations in May by rising 0.5% over the month versus consensus estimates of 0.1%. This is the first notable expansion since January and may temporarily assuage fears of an impending recession or stagflation.<\/p>\n

The services sector rose by 0.4% over the month, where the continued fall in COVID-related spending was offset by a significant increase in GP appointments. However, retail saw a 0.5% decline, adding to concerns over consumer sentiment and the rising cost of living. Industrial production grew by 0.9%, driven by a 1.4% jump in manufacturing, and trade figures also provided some grounds for optimism. Export volumes rose by 5.0%, whilst imports rose by 3.0% after having seen a 3.3% decline in April.<\/p>\n

However, these figures do not allow for the UK\u2019s May bank holiday being shifted to June to accommodate the Queen\u2019s Platinum Jubilee. Bank holidays usually detract from output, and this will be reflected June\u2019s GDP figures.<\/p>\n

Market review<\/strong><\/h3>\n

It was a volatile week in equity markets as investors digested data releases and attempted to divine the implications for markets. US stocks rose on Friday, but remained down for the week overall. The NASDAQ fell by 1.6% and the S&P 500 ended the week down almost 1%. The only major market to close the week in positive territory was in Japan, where the MSCI Japan benchmark registered a 0.4% increase.<\/p>\n

Conversely, it was a marginally positive week for fixed income. The BAML 10+ year non-gilt index finished up almost 1%, although it remains down more than 21% over the year. The 10-year US Treasury yield was 0.3% lower at 2.93%, adding to the fall from 3.5% a month ago.<\/p>\n

Oil also had a volatile week. On Thursday it fell to levels not seen since before the war in Ukraine but rallied on Friday to end the week down 5.5%.<\/p>\n

\n

Important information<\/strong><\/p>\n

All details in this article are provided for information purposes only and should not be misinterpreted as investment advice or taxation advice.<\/p>\n

Where the data in this article comes partially from third party sources the accuracy, completeness or correctness of the information contained in this publication is not guaranteed, and third-party data is provided without any warranties of any kind.\u00a0 Sarasin & Partners LLP shall have no liability in connection with third party data.<\/p>\n

\u00a9 2022 Sarasin & Partners LLP \u2013 all rights reserved.\u00a0 This article can only be distributed or reproduced with permission from Sarasin & Partners LLP. Please contact marketing@sarasin.co.uk.<\/p>\n","protected":false},"excerpt":{"rendered":"

Welcome to the weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last few weeks. US inflation continues to surge past forecasts US inflation continued to surge, reaching 9.1% in June versus the previous year, the highest level since 1981 and much higher than the 8.8% forecast. Adding to...<\/p>\n","protected":false},"author":73,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[28],"tags":[],"coauthors":[198],"class_list":["post-6738","post","type-post","status-publish","format-standard","hentry","category-markets"],"yoast_head":"\nThe week in markets - 20 July 2022 - Sarasin & Partners South Africa<\/title>\n<meta name=\"description\" content=\"Welcome to the weekly macroeconomic round-up, where we spotlight a few of the most significant events in the last few weeks. 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