Weekly Market Update Monday 26th June 2023

Weekly Market Update Monday 26th June 2023

The major U.S. stock indexes each fell more than 1%, breaking a run of eight consecutive weekly gains for the NASDAQ, five for the S&P 500, and three for the Dow Jones. Concerns about further interest-rate hikes and a slowing global economy weighed on stocks.

Stocks had been moving higher, with big tech companies taking the lead, for much of this month. Then came Fed Chair Jerome Powell’s appearance this week before a pair of Congressional panels. His suggestion that the Fed may have to raise rates two more times this year to contain inflation seems to have put an end to the market’s swagger. In prepared testimony before Congress on Wednesday and Thursday, Fed Chair Jerome Powell stated that “nearly all expect that it will be appropriate to raise interest rates somewhat further by the end of the year.” Indeed, the Fed’s latest Summary of Economic Predictions revealed that a majority of those on the policy committee expect at least two more quarter-point rate hikes in the coming year—although futures markets continued to predict that was unlikely.

As the United States and some other major economies assess whether to slow down or pause their inflation-fighting policies, the United Kingdom’s central bank went in a different direction, lifting its key benchmark interest rate by half of a percentage point. Thursday’s steep increase raised the rate from 4.5% to 5.0%, the highest level since 2008. The Monetary Policy Committee (MPC) voted to step up the pace of policy tightening after the latest inflation data came in unexpectedly strong. “There has been significant upside news in recent data that indicates more persistence in the inflation process,” the MPC said. Headline annual consumer price growth failed to slow down for a fourth month running in May, sticking at 8.7%.

In equity markets, in the US the Nasdaq was down 1.4% for the week and the S&P 500 Index also 1.4% lower, whilst the Russell 2000 fell nearly 3% for the week as recession fears weighed on small caps. Over in Europe the STOXX Europe 600 Index fell 2.93% on worries that further interest rate increases might cause a recession in Britain and the eurozone. Japan’s stock markets retreated from their 33-year highs, with the Nikkei 225 Index falling 2.7% and in Hong Kong, the benchmark Hang Seng Index declined 5.74%, its biggest drop in three months.

U.S. Treasury yields ended lower for the week, with the 10 year yield at 3.72%. In the UK, the 10-year government bond yield weakened to 4.32% after the Bank of England stepped up the pace of interest rate increases, and a similar trend saw recession fears push European government bond yields lower over the week. Anxiety about economic growth prospects and energy demand weighed on prices of crude oil, which fell nearly 4% for the week. U.S. crude fell below $70 per barrel on Thursday, and Friday’s price of around $69 was down almost 17% from a high recent high on April 12.