Weekly market review around the world: 16 – 20 June

16 – 20 June

US
The gloom in the property market continues as it was announced that housing starts fell by 3.3 percent in May and building permits declined by 1.3 percent during the same month. On the unemployment side, initial claims remained near recent highs. Against this backdrop, the S&P declined 3.1 percent, reaching its lowest level in three months, while the NASDAQ closed down 2.0 percent.

Japan
In Japan, the effect of this negative outlook was less pronounced. The Japanese central bank left interest rates at 0.5 percent with no significant change in its economic outlook, as the Japanese economy continues to navigate through a weak period due to the pressures of rising energy costs. The Topix index finished down 1.1 percent, while the Nikkei 225 Average declined by just 0.2 percent.

Europe
European equity markets mirrored declines in the US, on the back of increased worries in the financial sector. Inflation hit the headlines again, as the eurozone rate rose to 3.7 percent, the highest level in 16 years, prompting speculation that the European Central Bank (ECB) will be unable to keep interest rates on hold at its next meeting in July. In response, France’s CAC 40 declined by 3.7 percent while the German Dax fell 2.8 percent.

UK
In the UK, the headline rate of inflation hit 3.3 percent in May, however, this concern was checked by UK retail sales data that showed a remarkable 3.5 percent rise in May, which contradicted previous anecdotal evidence from retailers. Nevertheless, the FTSE All-Share closed down 3.1 percent during this period.

Asia & Developing Markets
Outside Japan, other Asian equity markets bucked the negative global trend. Hong Kong’s Hang Seng finished up 0.7 percent, while the Hong Kong China Enterprises index of Chinese stocks listed in Hong Kong gained 1.1 percent. Chinese stocks had a volatile week, culminating in a strong rally following news that Beijing had allowed fuel prices to rise triggering fears that Chinese inflation could spiral higher.

Bonds
The recent slide in government bond prices was halted this week as central bank officials sought to rein in expectations for global interest rate rises and fears about the outlook for the financial sector intensified. The steady drip of unsettling news in the financial sector, however, sent credit spreads wider in both the US and Europe. The iTraxx Crossover index, a closely watched barometer of broad credit quality, briefly rose above 500bps, after ending last week at 470bps.

Currencies
In currency markets, the US dollar depreciated against other major currencies. Sterling was volatile due to uncertainty over the outlook for UK interest rates, however, the pound finished 1.4 percent higher against the greenback, while the euro climbed above the USD 1.56 level.

Commodities
Continued oil price volatility dominated commodity markets. NYMEX West Texas Intermediate, the benchmark US oil price, hit a record high of USD 139.89 in the early part of the week before settling back at USD 134.21. Meanwhile, gold progressed strongly in the wake of renewed turbulence within the financial sector with the yellow metal finishing the period up 4.7 percent.

For further information, or to discuss how current global economic conditions are affecting your investments, please feel free to contact Craig Welsh at Spectrum IFA Group or visit www.expatfinance.nl.

This commentary was compiled with the assistance of BlackRock, one of the world’s leading investment management groups.