Ongoing Market Commentary: Bearish trend continues at the start of H2

written on July 1, 2022

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

Wall Street closed in negative territory on Thursday, with the Dow 254 points lower, the S&P 500 down 0.9% and the Nasdaq underperforming with a 1.3% loss. All three major indices saw sharp monthly and quarterly losses, with technology stocks hit especially hard. On first-half performances, the Dow and the S&P saw their worst performances since 1962 and 1970, respectively, while the Nasdaq suffered its worst-ever half-year run. European markets also closed sharply lower on the last trading day of June, with the Euro Stoxx 50 down 1.7%. Year-to-date, it was the worst first semester since the 2008 Great Recession, with the index slumping 20.2%. 

Summary

  • Asian markets reversed earlier gains and fell on the first day of the new quarter. The Nikkei fell almost 2% after sentiment at Japan’s large manufacturers worsened in the April to June period. Meanwhile, markets in China were lower despite positive data on the manufacturing front. 
  • Markets in Hong Kong were closed on Friday for a holiday as the city commemorates the 25th anniversary of its handover from the UK to China and the inauguration of the new chief executive, John Lee. 
  • European equities are set for a negative open as their US counterparts are also falling on future markets. 
  • Oil prices edged up in early trade on Friday after sinking in the previous session, as OPEC+ said it would stick to its planned oil output hikes in August and investors worried about the strength of the global economy. 
  • The Caixin China General Manufacturing PMI climbed to 51.7 in June from 48.1 in May, topping market forecasts of 50.1.  
  • The personal consumption expenditure price index (PCE inflation) in the US increased 0.6% month-over-month in May, higher than 0.2% in April. The annual rate was however unchanged at 6.3%, after touching a record high of 6.6% in March. 
  • President Vladimir Putin signed a decree to transfer rights to the Sakhalin-2 natural gas project to a new Russian company, citing threats to Russia’s national interests and economic security. The move could force foreign owners, including Shell, which holds a 27.5% stake in the LNG facility, to abandon their investment in Russia’s far east. 
  • Russian troops have withdrawn from Snake Island, a tiny but strategic outpost in the Black Sea, after repeated assaults by Ukranian forces. Ukraine’s control of Snake Island could undermine Russia’s blockade of vital shipping lanes for grain in the Black Sea. Still, there was no indication that Russia was prepared to allow safe passage of Ukranian vessels leaving the port of Odesa. 
  • The European Union late Thursday reached a provisional agreement on its landmark Markets in Cryptoassets directive, bringing years of debate on how to regulate the digital-asset industry to an informal close. The key legislation will regulate the crypto sector with common rules across all 27 member states, marking the first time globally that lawmakers have attempted to supervise the sector on such a scale. 
  • Siemens said Thursday it expects an impairment of its investment in Siemens Energy to impact its third-quarter net income by about €2.8 billion. The German conglomerate’s warning comes after the market value of its 35% investment in Siemens Energy fell below the book value. 

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