Global Markets Update Monday, 29 August 2022

Global stocks fell and bond yields rose as investors as hopes that the pace of tightening in monetary policy may ease were dashed by hawkish central bank comments.


The FTSE 100 slid 1.0% over the two weeks.

UK inflation rose to 40-year high of 10.1% in July. The Bank of England predicted it could rise as high as 13%, with UK economic growth turning negative in the last quarter of this year and remaining in recession throughout 2023. The Bank is now expected to lift borrowing costs to almost 3% by November compared to a current base rate of 1.75%.

GfK’s measure of UK consumer confidence fell to its lowest level since comparable records began almost 50 years ago as the rising cost of living stokes concerns over personal finances and economic prospects. However, retail sales beat expectations in July, rising 0.3% over the month.

The flash estimate of S&P Global/CIPS UK composite purchasing managers’ index (PMI) fell to an 18-month low of 50.9 in August from 52.1 in July. The services sector expanded at the slowest pace in 18 months.


The S&P 500 fell 3.0% over the fortnight, while the tech-heavy Nasdaq dropped 4.7%.

Hopes that the Federal Reserve may relax its stance were dashed after Jay Powell, in a key speech at the central bankers meeting at Jackson Hole, stressed the Fed “must keep at it until the job is done” by raising interest rates to tackle surging inflation. Following the speech, the market moved to price in a federal funds rate of 3.8% by February 2023, up from expectations of 3.3% and compared to a current range of 2.25-2.5%.

US GDP contracted by an annualised 0.6% in the second quarter, an upward revision on the 0.9% contraction initially recorded.

Annualized sales of newly built homes fell 12.6% month on month in July, while the rate of new home construction fell to its lowest level in July since early 2021.

The flash estimate of S&P Global’s US composite PMI fell further into contraction territory in August, hitting its lowest level since early 2020. Services activity fell to a 27-month low of 44.1.

Retail sales proved more resilient than expected in July, rising 0.7%. The University of Michigan’s index of consumer sentiment also rose more than expected, hitting 58.2 in August after bottoming at a record low of 50 in June.


The FTSEurofirst 300 declined 2.8% over the two-week period.

The minutes from the European Central Bank’s (ECB) July policy meeting suggested that more interest rate hikes could be forthcoming to subdue persistently high inflation that “posed an increasing risk of longer-term inflation expectations becoming unanchored”. The ECB is widely expected to raise rates by at least 50bps at its meeting on 8 September, although some are pushing for a 75bps increase as soaring energy prices drive inflation higher.

Norway’s central bank increased interest rates by 50bps, its second consecutive increase, and signalled it would raise rates further in September.

The flash estimate of August’s S&P Global’s eurozone composite PMI fell to an 18-month low of 49.2 from 49.9 in July.

German producer prices rose 37.2% in July from a year earlier, driven by strong increases in natural gas and electricity costs.


The Nikkei 225 gained 0.3% over the two weeks.

Japan’s GDP expanded by an annualized 2.2% in the second quarter. While the data was slightly weaker than expected, it represents the third consecutive quarter of growth for Japan’s economy.

Core inflation increased to 2.4% in July, from 2.2% in June.

The au Jibun Bank Japan composite PMI fell to 48.9 in August from a final 50.2 in July. Manufacturing activity eased but continued to expand.

Pacific ex Japan

The People’s Bank of China reduced the medium-term lending rate, through which it provides one-year loans to the banking system, by 10 basis points to 2.75%, the first cut since January. The decision highlighted deepening anxiety in Beijing as it tries to combat a months-long decline in consumer demand triggered by its drawn-out zero-Covid policy, as well as growing concerns about the indebtedness of the country’s housing market. The PBOC also cut two key interest rates, with the five-year loan prime rate (LPR), a reference for mortgages, reduced by 15 basis points to 4.30% and while the one-year LPR was trimmed by 5bps to 3.65%.

Chinese retail sales rose by 2.7% year on year in July while industrial production increased 3.8% higher. Both measures missed expectations.

China announced the addition of Rmb300bn ($44bn) in credit support by its policy banks, the state-controlled institutions used by Beijing to spur economic growth.

The Philippines’ central bank raised its benchmark interest rates by 50bps, marking the fourth rate hike this year.

Emerging Markets

The Polish economy contracted by 2.3% over the second quarter. Growth has been hit by higher energy prices, supply chain disruptions, low consumer confidence and austerity measures.

Turkey’s central bank cut interest rates by 100 bps to 13%, despite inflation of nearly 80%. Policymakers justified the rate cut by indicating that they expect the “disinflation process to start on the back of measures taken and decisively implemented for strengthening sustainable price and financial stability”.

Indian bonds may soon be added to JPMorgan’s key emerging markets bond index.

India’s inflation rate dipped to 6.71% in July, aided by lower food prices.

Brazil’s annual inflation rate declined to 10.07% in July from 11.89% in June, marking the lowest level since December 2021, helped by cuts in energy price taxes.


The yield on the 10-year US Treasury rose back above 3.0% to close at 3.03%, a rise of 17 bps over the two weeks. The yield on the two-year note closed at 3.42%, slightly below the 14-year high it reached in June.

10-year German Bund yields rose 41bps over the two weeks, ending at 1.39%, while Italy’s 10-year bond yield approached the 4.0% level, a level that is largely regarded as unsustainable.

UK gilt yields also jumped, with the 10-year yield rising 49bps over the two weeks to close at 2.60% while two-year gilt yields increased 77bps to close at 2.92%, their highest level since the 2008 financial crash.


Gas prices in Europe and the UK rose to fresh highs after Gazprom announced further maintenance-related closures of the Nord Stream 1 pipeline to Europe at the end of August.