Financial Markets’ Weekly Recap – July 18-22

The US dollar fell over the past week by more than 1.5%, and closed at 106.410 last Friday. The US Treasury yields declined, but the gap remains large between the two-year yields of 2.9721 and the 10-year yields of 2.754.

Following the conclusion of its two-day policy review meeting on Thursday, the Bank of Japan (BOJ) board members decided to leave its monetary policy settings unchanged, holding rates at -10bps while maintaining the 10yr JGB yield target at 0.00%.

The BOJ vote was 8 to 1, leaving its pledge to buy JGBs unchanged so that its holdings increase at an annual pace of around 80 trln yen.

The BOJ cut its economic growth forecast for the current fiscal year to 2.4 percent, down from 2.9 percent in its previous forecast, warning that “extremely high uncertainties” remain, from Covid-19 to the situation in Ukraine.

The European Central Bank (ECB) announced on Thursday that it raised its key rates by 50 basis points (bps) following the July policy meeting. Markets were expecting the bank to hike its rates by 25 bps.

With this decision, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 0.50%, 0.75% and 0.00%, respectively, with effect from 27 July 2022.

“In line with ECB’s strong commitment to its price stability mandate, ecb took further key steps to make sure inflation returns to its 2% target over medium term.”

“ECB judged that it is appropriate to take a larger first step on its policy rate normalisation path than signalled at its previous meeting.”

Policy Statment

The UK Consumer Prices Index (CPI) 12-month rate came in at 9.4% in June compared to 9.1% seen in May while beating estimates of a 9.3% print, the UK Office for National Statistics reported on Wednesday. The core inflation gauge (excluding volatile food and energy items) eased to 5.8% YoY last month versus 5.9% booked in May, meeting the market forecast of 5.8%.

Europe

European shares posted their best week in two months on Friday as concerns over tight energy supplies eased, spreading some relief among investors worried about a sharp rise in interest rates and the fallout from a political crisis in Italy.

European markets closed higher on Friday as investors reacted to economic data and corporate earnings and tried to assess the course of monetary policy.

The Stoxx 600 closed up 0.4%, with travel and leisure stocks up 2.4%, as most major sectors and stock exchanges closed in positive territory.

The pan-European benchmark index had a good week, rising nearly 3%.

While Russian gas flows to Europe resumed after disruption due to a pre-planned maintenance operation, market participants were concerned as business activity in the eurozone contracted unexpectedly in July due to a slowdown in manufacturing and almost halted service sector growth.

Oil

Oil prices fell on Friday, July 22, as global demand expectations weakened, as well as the resumption of production of some Libyan crude oil.

Brent crude futures fell $1.02 to $102.84 a barrel.

West Texas Intermediate crude futures fell $1.08 to $95.27 a barrel.

Friday’s data revealed that the global economy is increasingly heading towards a dangerous slowdown, with central banks raising interest rates at high rates compared to a very loose monetary policy during the pandemic to support growth.

While weak US demand affected oil prices and pushed the benchmark contracts down by about 3% in the previous session, limited global supplies continued to maintain the market’s recovery.

On the other hand, signs of strong demand in Asia boosted Brent crude, putting it on track for its first weekly gain in six weeks.

Friday’s data revealed that the global economy appears increasingly heading towards a dangerous slowdown, with central banks raising interest rates at high rates compared to a very loose monetary policy during the pandemic to support growth.

While signs of weak US demand weighed on oil prices and pushed benchmark contracts down about 3 percent in the previous session, limited global supplies continued to sustain the market’s recovery.

But supply concerns eased slightly after Libya resumed production at several oil fields this week.

Gold

Gold prices rose on Friday, supported by lower US Treasury yields, although the prospects of a Federal Reserve interest rate hike and a stronger dollar limited gains.

And by 1215 GMT, gold in spot transactions rose 0.5% to $ 1727.09 an ounce. Prices fell to a more than one-year low of $1,680.25 on Thursday before closing 1.3 percent higher.

Gold is up 1.2 percent so far this week.

US gold futures rose 0.8 percent to $1,727 an ounce.

Asia

The Japanese Nikkei index rose to its highest level in more than 6 weeks at the close on Friday, July 22, supported by gains in growth-related stocks that followed the path of gains on Wall Street in the evening, and the shares of shipping companies, which rose after recording strong gains.

The Nikkei index rose 0.4% to close at 27,914.66 points, the highest closing level since the ninth of June.

The index jumped 4.2% this week, its biggest weekly gain since March 25.

It also rose for the seventh consecutive session, which is the longest continuous period of rising since the end of March.

The broader Topix index rose 0.28% to 1955.97 points and recorded a weekly increase of 3.35%.

Earnings

American Express reported on Friday second-quarter earnings that beat analysts’ forecasts and revenue that topped expectations.

American Express announced earnings per share of $2.57 on revenue of $13.4B. Analysts polled by Investing.com anticipated EPS of $2.41 on revenue of $12.49B.

American Express shares are down 8% from the beginning of the year, still down 24.74% from its 52-week high of $199.55 set on February 16. They are outperforming the S&P 500, down 16.1% from the start of the year.

Philip Morris reported on Thursday second-quarter earnings that beat analysts’ forecasts and revenue that topped expectations.

Philip Morris announced earnings per share of $1.48 on revenue of $7.83B. Analysts polled by Investing.com anticipated EPS of $1.25 on revenue of $6.66B.

Twitter Inc reported on Friday second-quarter earnings that missed analysts’ forecasts and revenue that fell short of expectations. Twitter Inc announced earnings per share of $-0.08 on revenue of $1.18B. Analysts polled by Investing.com anticipated EPS of $0.1494 on revenue of $1.33B.

Twitter Inc shares are down 8% from the beginning of the year, still down 46.05% from its 52-week high of $73.34 set on July 23, 2021. They are outperforming the S&P 500, down 16.1% from the start of the year.