Shares in Europe fell after the U.S. Federal Reserve indicated it would increase rates sooner than previously anticipated. In local currency terms, the pan-European STOXX Europe 600 Index slid 1.19%. Germany’s Xetra DAX Index fell 1.56%, Italy’s FTSE MIB Index fell 1.94%, and France’s CAC 40 Index eased 0.48%. The UK’s FTSE 100 Index slipped 1.63%.
Core eurozone government bond yields rose with U.S. Treasury yields after the Fed communicated plans to begin increasing interest rates in 2023. Comments from the European Central Bank (ECB) helped moderate this move. Peripheral government bond yields broadly tracked core markets. Greek five-year government bond yields turned negative for the first time, reflecting the ECB’s plan to continue its monthly bond-buying program. UK gilt yields ended higher on increased expectations that the Bank of England (BoE) would tighten policy after inflation exceeded the bank’s target, and on the Fed’s more aggressive stance.
UK inflation jumped again in May, accelerating to 2.1%, on higher prices for clothing, fuels, and meals in bars and restaurants. The increase was above economists’ forecasts and the BoE’s target. If the inflation rate consistently exceeded the BoE’s target, governor Andrew Bailey said last month he would not hesitate to tighten monetary policy.
US stocks declined as a surprisingly aggressive outcome from the Federal Reserve’s June 15– 16 policy meeting, and late-week remarks from a Fed official about potentially earlier-than-expected rate hikes dragged the Dow Jones Industrial Average lower. The Dow includes many cyclical companies — those most dependent on economic growth. However, the tech-heavy Nasdaq Composite index posted a much more modest loss. The broad market S&P 500 Index declined.
U.S. Treasuries were volatile following the policy meeting. The 10-year U.S. Treasury yield increased sharply after the Fed meeting on Wednesday, before falling on Thursday and Friday. (Bond prices and yields move in opposite directions.) Short- and intermediate-term Treasury yields experienced more sustained increases. The difference in yield on five- and 30-year Treasuries reached a lower level than where it started 2021, a trend that could weigh on financial stocks because banks tend to profit from larger spreads between short- and long-term rates.
Japan’s stock markets generated mixed returns for the week, with the Nikkei 225 Index rising 0.05% and the broader TOPIX Index down 0.38%. The yield on the Japanese 10-year government bond rose to 0.06%, while the yen weakened to JPY 110.23 against the U.S. dollar.
Chinese stocks recorded their third weekly loss. The large-cap CSI 300 Index fell 2.3%, and the Shanghai Composite Index shed 1.8%. The yield on China’s 10-year government bond rose five basis points to 3.20%.
Brent crude futures rose 43 cents, or 0.6%, to settle at $73.51 a barrel on Friday, while US West Texas Intermediate (WTI) crude rose 60 cents, or 0.8%, to $71.64 a barrel. Both were up around 1% for the week. Gold shed $110 an ounce last week, again thanks to the Fed’s inflation and interest rates announcements. It fell 0.6% on Friday to $1,762.63 per ounce, with prices down around 5.7% on the week. Silver lost 7.8% for the week after closing at $28.85.
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Lawsons Equity Limited is a company registered in Malta with company number C49564 and Licenced by the Malta Financial Services Authority as Enrolled Insurance Brokers under the Insurance Intermediaries Act 2006, and to provide Investment Services under the Investment Services Act, 1994. Lawsons Equity Ltd have passported their services across the EU. To see a full list of countries click here
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