Inflation Figures Influence Global Market Movements

With recession fear looming over most of the global economies, a high inflation reading would further add pressure on the Federal Reserve to step up its already aggressive pace of interest rate hikes 

On the hopes that the Federal Reserve will be able to tame inflation without sending the economy into a recession, most of the Wall Street stocks recovered a large portion of their losses in the past fortnight. The S and P 500 index is down 19.1 per cent from its top in January but had exited the bear market as a result of the gains. The largest sectors of the index – communication services, consumer discretionary and information technology – were the best performers. Also, a dramatic decline in energy stocks ensured that oil prices slipped below USD 100 per barrel for the first time in almost two months.

However, later in the week, shares of energy companies rallied along with crude prices. The Labor Department’s payroll report which showed that companies added 372,000 nonfarm positions in June, exceeding the consensus projections of about 270,000, was the most closely watched information. Investors may have been concerned that May’s gain was revised somewhat higher, from 0.3 per cent to 0.4 per cent, despite the fact that the 0.3 per cent increase in average hourly wages was in line with forecasts. Earnings increased by 5.1 per cent over the course of a year, which is the third consecutive monthly down from the peak of 5.6 per cent reached in March.

European stocks rose in the past fortnight. The advances, however, appeared to be constrained by China’s decision to reinstate certain restrictions meant to stop the corona virus from spreading and concerns that an oil deficit might trigger a recession in Europe. 

ADP, a company that processes payrolls, indicated that it was adjusting its methodology and postponing its monthly count of private payrolls until August. The official reports and the ADP have diverged significantly in recent months. Following three straight months of losses, European stocks rose in the past fortnight. The advances, however, appeared to be constrained by China’s decision to reinstate certain restrictions meant to stop the corona virus from spreading and concerns that an oil deficit might trigger a recession in Europe. The STOXX Europe 600 index for all of Europe finished the week 2.45 per cent higher in local currency terms.

Germany’s Xetra DAX index increased 1.58 per cent, France’s CAC 40 increased by 1.72 per cent and Italy’s FTSE MIB increased by 1.96 per cent. The FTSE 100 in the UK increased by 0.38 per cent. In an official statement, the Chinese government said that the second half of the year needs to be stronger for the economy to reach its 5.5 per cent growth goal. In order to support the economy, Beijing has been distributing additional fiscal stimulus, such as increasing infrastructure investment and lowering company taxes. However, achieving the growth target will become very difficult as China tightens regulations once more to contain any virus outbreak.