Written by Nathan Sweeney – CleverMPS Portfolio Manager & Marlborough’s Deputy CIO – Multi Asset, the Market Review is packed with the most interesting and impactful events of the past week from the global financial markets.
Equity markets were down for the week, as investors continue to digest the impact of higher interest rates. However, inflation in the US continues to show signs that it’s moving lower, as petrol prices fell 13% in August. Additionally, the US jobs report showed no wage inflation, as the labour force grew by 786,000; basically, more people are starting to look for work.
In China, a number of cities are in lockdown or under virus-related controls, including the southern tech hub of Shenzhen, as well as Chengdu, which went into lockdown last Thursday. It is estimated that 41 Chinese cities, responsible for 32% of the country’s gross domestic product, are grappling with coronavirus outbreaks, the highest number since April.
Japan’s Defense Ministry made a ¥5.6tn budget request last week to increase its defence planning for the year to March 2024, up from the current ¥5.4tn budget. Japan has announced it will upgrade its cruise missiles and research of hypersonic weapons, in response to China’s recent military drills in Taiwan.
Euro area annual inflation increased to 9.1% in August 2022 (vs. 9% expected), up from 8.9% in the previous month, as a consequence of surging prices for energy, food, services, and non-energy industrial goods. Core inflation, which excludes food and energy, increased to 4.3% in August from 4% in July 2022.
Will the European Central Bank deliver a historic rate rise this week? Even before last week’s data showed Eurozone inflation hitting a record high and unemployment falling to a new low, markets were expecting the European Central Bank to raise the interest rate by 0.75bps.
Natural gas prices in Europe are set to rebound today, after Russia’s Gazprom said Nord Stream gas pipeline to Europe won’t re-open as planned. Last Friday, the European benchmark for gas prices closed below €220, more than 30% below record levels set the week before, as investors were hoping that the flows would resume.
Toyota announced plans to invest approximately $5.2 billion to increase its electric battery production capacity in the US and Japan, citing growing demand for electric cars. The announcement marks the second multi-billion dollar announcement last week, with Honda also revealing plans to invest $4.4 billion in a new US-based battery plant with partner LG Energy Solution.
Central bank meetings in Europe, as well as several speeches by Fed officials, will dominate the news this week. Also, China will release its inflation rate, and GDP updates will be available for the Euro area, Japan and Canada. Investors will also watch the situation in the energy market in Europe, after a crucial pipeline bringing gas to Germany from Russia will no longer re-open as planned.
Sources: Nathan Sweeney – CleverMPS Portfolio Manager & Marlborough’s Deputy CIO – Multi Asset, Marlborough’s Multi Asset Investment team, The FT, T.Rowe Price, John Hancock, Morningstar, Trading Economics, and ESG Today.
Risk Warning: These are Nathan’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.
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