Week ending 8th July 2022.

For global events and politics, it has been a busy and largely negative week, however the opposite can be said for financial markets; they’ve shifted their focus from inflation to recession (as we mentioned earlier in the week), and consequently we’ve seen an uplift in markets this week, with many key markets ending the week in positive territory.

“If you’re going through hell, keep going”. This quote from Winston Churchill is a suitable theme to start this week’s update. For months, the Prime Minister of the UK, Boris Johnson, had come up against calls for resignation, and votes of no confidence in his leadership.  For around 36 hours, following the resignations from key cabinet members Rishi Sunak and Sajid Javid (followed by reportedly almost 60 more MPs), it looked like Boris Johnson was going to keep going, however it was announced on Thursday that the Prime Minister of the UK had handed in his resignation. As we await the news of candidates for the premiership, we are unlikely to see any observable impact to markets given this leadership turmoil. As an aside, it has been widely reported on social media that the stalwart that is Larry the Downing Street cat, will remain in number 10.

Looking beyond the UK, senior delegates from the US and China have met this week to discuss economic tariffs on Chinese imports. There are reports that the US government are considering rolling back some of these sanctions over Chinese goods – which could help to ease some pressures behind inflation in the US.

Also this week, it was reported that China’s Ministry of Finance is considering releasing 1.5 trillion yuan of bonds in the second half of the year, with the money raised to be used on infrastructure spending. We’ve long said that China have ample monetary policy levers to pull to support its economy, making it one of the most attractive regions for investment, globally. This is likely to help boost growth in the region.

Chinese Services PMI came in at 54.5 for June, blowing expectation out of the water. The figure (which was expected to contract) comes in well into expansionary territory. Following lockdowns that have beleaguered China, this data is a sign that the world’s second largest economy is coming back online.

Minutes from the last Federal Open Market Committee were released this week; whilst the minutes showed an appetite to continue to raise interest rates, they were largely overshadowed by more recent fears over a technical recession in the US. If a recession is on the cards in the US, this will likely add to deflationary pressures and slow the rate at which the central bank will raise rates, as they will be keen to avoid a deep recession.

US employment data was released at the end of the week, and whilst the jobless rate remains static, the participation rate came in lower than both expectations, and the previous reading. This data shows that interest rate increases have started to impact markets (as intended), and is further support for the case for gradually increasing interest rates (rather than aggressively increasing rates), as the Federal reserve will need to wait and see what happens here.

At the end of the week, Former Japanese Prime Minister, Shinzo Abe was tragically shot and killed at a political campaigning event. This assassination of the longest serving prime minister in Japanese history has shocked the world. This is unprecedented in Japan, not only an attack on such a high-profile individual, but also the use of a gun to carry it out. Both the currency and the markets have seen some uncertainty (and may continue to do so) as the attack was seen also as an attack on his monetary policy legacy – the popular previous leader was a huge supporter of Bank of Japan monetary policy, and was known globally for his economic strategy, coined as Abenomics.

In the coming week, we’ll be watching out for a scheduled speech by Haruhiko Kuroda, Governor of the BOJ, UK and Chinese GDP, and US CPI.

The Investment Management Team

The latest market updates are brought to you by Investment Managers & Analysts at Wealth at Work Limited which is a member of the Wealth at Work group of companies.

Links to websites external to those of Wealth at Work Limited (also referred to here as 'we', 'us', 'our' 'ours') will usually contain some content that is not written by us and over which we have no authority and which we do not endorse. Any hyperlinks or references to third party websites are provided for your convenience only. Therefore please be aware that we do not accept responsibility for the content of any third party site(s) except content that is specifically attributed to us or our employees and where we are the authors of such content. Further, we accept no responsibility for any malicious codes (or their consequences) of external sites. Nor do we endorse any organisation or publication to which we link and make no representations about them.