Global Markets Update Monday, 13 June 2022

Global stocks and bonds sold off as higher-than-expected US inflation increased expectations that the Federal Reserve would need to be more aggressive in raising rates.

The World Bank and OECD cut their global growth forecasts because of the Ukraine war and higher energy prices.


The FTSE 100 lost 4.5% over the two-week period.

Boris Johnson survived a vote of no confidence but emerged badly wounded as 41% of Conservative MPs voted against him.

UK retail sales fell 1.1% in May as the cost-of-living crisis hit consumers.


The S&P 500 declined 5.3% over the fortnight.

The US economy added 390,000 jobs in May. While the data was modestly below April’s 436,000 additions, it still exceeded expectations.

US inflation rose to a stronger-than-expected annual rate of 8.6% in May, up from 8.3% in April and the highest level since December 1981. Core inflation held steady at an annual rate of 6.0%.

The University of Michigan’s index of US consumer sentiment fell to a record low of 50.2 in June, from 58.4 in May.

The ISM manufacturing purchasing managers’ index (PMI) rose to a stronger-than-expected 56.1 in May, from 55.4 in April.

The ISM services PMI was weaker than forecast, falling to 55.9 in May from 57.1 in April.

Microsoft cut its quarterly revenue forecasts on the back of unfavourable exchange rates.

Target warned it would have to shift excess stock with deeper discounts. The announcement is expected to further lower its operating margin.


The FTSEurofirst 300 fell 4.8% over the two weeks.

European bank stocks fell as they were hit by a sell-off in eurozone sovereign debt; many banks have significant holdings of government bonds.

The European Central Bank signalled it would likely raise rates by 25 bps in July. It also hinted of more aggressive rate rises later in the year, saying rates may be above zero in September – this would mark the first time in eight years that rates have been in positive territory. The ECB also said that it would end net purchases of member states’ debt, sparking fears about financial stress for the bloc’s weaker economies.

EU nations finally agreed to ban around 90% of Russian oil imports: the ban temporarily excludes oil delivered to Hungary, Slovakia and the Czech Republic via the northern part of the Druzhba pipeline to give these nations extra time to wean themselves off crude oil supplies from Russia.

Eurozone inflation rose to 8.1% in May, from 7.4% in April.

Eurozone retail sales fell 1.3% over the month of April, the first drop since the start of the year.

Eurozone producer prices climbed at a record annual pace of 37.2% in April, up from 36.9% in March.

German exports rose 4.4% over the month of April.

Preliminary German inflation for May was higher than expected, coming in at 8.7% year on year.


The Nikkei 225 gained 3.9% over the fortnight.

The Bank of Japan maintained its dovish stance, keeping interest rates on hold at -0.1% and committing to keep the 10-year JGB yield within 25bps of zero. BOJ governor Haruhiko Kuroda said that a weakening yen would boost the profits of Japanese companies.

Pacific Basin

The Chinese authorities announced that public transport and restaurant dining would reopen in Beijing. Shanghai’s two-month lockdown was also mostly lifted on 1 June, although lockdowns are still being imposed while the authorities undertake mass testing in certain districts.

The Caixin China services PMI increased to 41.4 in May from April’s 26-month low of 36.2, the third straight month of contraction amid further COVID-19 lockdown measures.

The Caixin China manufacturing PMI increased to 49.1 in May from April’s 26-month low of 46.0. While the reading beat market forecasts, it was the third consecutive month of contraction.

China’s official manufacturing PMI rose to 49.6 in May from April’s 26-month low of 47.4, helped by an easing of COVID-19 curbs in major key cities, including Shanghai and Beijing.

The Reserve Bank of Australia raised interest rates by 50 bps to 0.85% in the largest move since 2000 as it adopts a more aggressive approach to curbing rampant inflation.

Inflation in South Korea rose to 5.4% in May, the highest in almost 14 years.

Emerging Markets

Russia’s central bank cut interest rates to 9.5%, a level last seen prior to the country’s invasion of Ukraine in February.

Brazil’s first-quarter GDP expanded 1.0%, a pick-up from the 0.7% growth recorded in the previous quarter.

The Turkish economy expanded 7.3% year-on-year in the first quarter of 2022, easing from a 9.1% advance in the previous period. Turkish inflation hit a 23-year high of 73.5% in May.

The Indian economy expanded 4.1% year-on-year in the first three months of 2022, slightly higher than market forecasts of 4%, but the weakest performance in a year, due to rising Omicron infections and energy prices as well as ongoing supply chain constraints.


The yield on the 10-year US Treasury bond rose 41 bps over the two weeks to close at 3.15%. The yield on the two-year note, rose to 3.01%, the first time since 2008 that two-year rates have been above 3%. The yield curve between five- and 30-year bonds also inverted – such an eventuality usually heralds a recession. The futures market now expects the federal funds rates to be 3.2% by year end, implying 50-bps increases at the Fed’s next four meetings (June, July, September and November) plus a 25-bps increase in December.

The yield on the 10-year German Bund increased 56 bps over the fortnight to close at 1.52%, its highest level since 2014, while the 10-year UK Gilt yield rose 52 bps to 2.44%. Italy’s 10-year bond yield rose to 3.75%, more than triple its level at the start of the year and the highest level since 2014, while the spread over German Bunds widened to the most since May 2020. Greece’s 10-year bond rose to 4.28%, climbing past the level it reached at the height of the pandemic. Spanish and Portuguese debt was also hit.


The Japanese yen fell to a new 20-year low against the US dollar.

The Turkish lira declined to a record low after President Recep Tayyip Erdogan reiterated his vow to cut interest rates despite spiralling inflation.


Oil prices continued to rise, despite news that Opec and its allies had agreed to accelerate oil production in July and August.