Read the 10 stories to remember from the week which ended June 18.
#1: Fed decides to raise rate to keep inflation in check
The Summary of Economic Projections released after the Fed’s 15-16th of June policy meeting showed that the policymakers expected to engage in two rate hikes by 2023. The market seems to recover well from the pandemic, but this also comes with fears of inflation, which, although seemingly transitory, should be kept in control. The Fed’s plan to let inflation run above 2% to attain full employment while letting rates down is still scaring some economists.
#2: Calm interrupted for the S&P 500, cyclical stocks dragged lower
Although the US index posted gains for three consecutive weeks, the S&P 500 reversed its course, dropping nearly 2% last week. Stocks declined in reaction to the Fed’s hawkish comments, which talked of earlier-than-expected rate hikes. While the Dow Jones dropped, the Nasdaq managed to post a much more modest loss. Large cap equities stood their ground better than small caps.
#3: Growth stocks are back, value left behind
Growth stocks were the largest beneficiaries of last week, as investors moved their funds from energy and financials sectors, fearing that the Fed would remove their accommodating policies and raise rates. Value stocks tumbled 4.1% on average, vs. a 0.5% gain for growth stocks. This seemed to have equalized the overperformance of value stocks over growth stocks for the year.
#4: Europe stocks also affected by the rate hikes announcement
Shares in Europe also lagged after the Fed announced that it would increase rates earlier than previously expected. 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 declined 1.94%, and France’s CAC 40 Index eased 0.48%. The UK’s FTSE 100 Index slipped 1.63%. On the other hand, bond yields rose with the U.S. Treasury yields. UK gilt yields also ended higher overall, as the Bank of England was also expected to tighten its policy as inflation was starting to exceed its target rate, reaching 2.1%.
#5: Not every European country is equal in the face of Covid-19
France finally ended its night time curfew which was established since October, and even starting to drop the requirement to wear masks in most public places. Denmark did the same and Germany said to be planning on doing so as well. However, UK Prime Minister Boris Johnson delayed the full reopening for England. The official day was supposed to be the 21st of June, but it was decided to keep things closed for yet another month, while the country was doubling down on its vaccination effort.
#6: Japan’s market results were mixed, but pandemic recovery is positive
The Japanese stock market generated mixed results, with a Nikkei 225 Index rising 0.05% and the broader TOPIX Index dropping 0.38%. Japanese 10-year government bond yields rose to 0.06% and the yen dropped to JPY 110.23 against the US dollar. The government announced the easing of coronavirus restrictions, just a month ahead of the Olympics. Seven areas were freed of the emergency states, leaving only Tokyo and Osaka in the red zone. Infections are dropping, but the fear of variants remains.
#7: Chinese stocks recording their third weekly loss
With the large-cap CSI 300 Index falling 2.3% and the Shanghai Composite Index dropping 1.8%, this was surely not the most brilliant week for Chinese markets. The yield on China’s 10-year government bonds rose five basis points to 3.20%. Regarding currency, the renminbi weakened slightly against the U.S. dollar, exchanging for RMB 6.44 per dollar. What is interesting to not is that unlike many other Asian countries, the shift towards monetary normalization already occurred in China, which could be a strong advantage for the Chinese currency once the US act out on their policy tightening decision later this year.
#8: New Energy Vehicles (NEV) set to conquer Chinese markets
New energy vehicle (NEV) stocks rallied of Friday as the China Association of Automobile Manufacturers projected that 20% to 30% of new vehicles would be NEV in the next 5 to 8 years. The NEV penetration rate showed an historic high of 12% and NEV domestic sales jumped 8.3% in May from April and more than double from the same month a year ago.
#9: The return of the black gold
Oil is back! U.S. crude oil prices rose for the 4th week in a row, climbing to almost $72 a barrel, which is their highest level since October 2018. Only a month ago, on May 20th, oil was trading at $62. It seems that the global economic recovery is happening at a better rate than expected, and that many actors fear that the offer will be outpaced by the demand.
#10: Putin and Biden sharing a coffee in Geneva, Switzerland
U.S. President Joe Biden and Russian President Vladimir Putin met in Geneva on Wednesday for the first summit since President Biden took office in January. Everything seemed to go well, with both actors reporting a pleasant, polite and constructive meeting. One of the main outcomes of the meeting was the agreement to task experts to work on cyber-attacks, to determine and “work on specific understandings on what's off-limits and to follow up on specific cases." Of course, the two great powers did not become buddies over one meeting, but this meeting could be the first chapter in an era of more calm and mutual respect between the two nations.
Source: John Hancock Investment Management, T-Rowe Price, CNN