Investors pivoted to being more concerned over slowing growth than rampant inflation.

UK

The FTSE 100 rallied 2.3% over the two weeks.

UK chancellor Rishi Sunak announced a temporary 25% “energy profit levy” on the profits of oil and gas companies. The money raised will be part of a £15bn package to help households with soaring energy bills.

UK inflation surged to a 40-year high of 9% year on year in April, while unemployment fell to the lowest rate in 50 years with the number of open positions outweighing the number seeking employment.

The flash S&P Global/CIPS UK composite purchasing manager index fell sharply to a 15-month low of 51.8 in May, down from 58.2 in April. Service sector activity saw the steepest decline, dropping to 51.8 compared to 58.9 in April.

UK retail sales unexpectedly rose 1.4% in April. The increase was driven by higher alcohol sales in supermarkets, suggesting people are reacting to rising prices by staying at home rather than going out.

GfK’s measure of UK consumer confidence fell to -40 in May, its lowest level since records began in 1974.

US

The S&P 500 rose 2.6% over the two weeks, although it briefly entered an official bear market after Walmart and Target issued downbeat earnings reports.

Minutes from the Fed’s latest rate-setting meeting showed policymakers had discussed using more aggressive rate rises but were concerned about the effect it would have on the labour market.

US first-quarter GDP growth was revised down to a 1.5% contraction as the US trade deficit widened, government spending declined and inventory investment dipped.

The core PCE price index, the Fed’s preferred measure of inflation, rose 4.9% year on year in April, down from a reading of 5.2% in March.

The flash S&P Global services PMI fell to 56.3 in May from 57.7 in April, although it was the second-strongest expansion in the services sector in the past eight months. Manufacturing activity slid to 54.4 in May from 55.5 in April, marking the smallest expansion since November 2020.

Durable goods orders rose 0.4% over the month of April.

New home sales fell by almost 17% in April.

Broadcom announced it was buying software group VMware for $69bn. The takeover will help to transform the semiconductor company into a diversified tech business.

Europe 

The FTSEurofirst 300 gained 2.5% over the two weeks.

ECB president Christine Lagarde signalled that the ECB was “likely to be in a position to exit negative interest rates by the end of the third quarter”. Dutch central bank chief Klaas Knot suggested that the European Central Bank should raise interest rates by 25 basis points in July, but also remain open to a larger increase if inflation worsens.

The flash S&P Eurozone composite PMI fell to 54.9 in May from 55.8 in April. Services posted a strong showing as Omicron related restrictions were lifted, especially for tourism and recreation activities. However, manufacturing activity weakened amid widespread supply shortages.

Hungary’s Viktor Orbán ruled out discussing the EU’s proposed oil embargo of Russia at the forthcoming EU summit.

TotalEnergias took a 50% stake in wind and solar farm developer Clearway with a $2.4bn deal, bolstering its pivot towards cleaner energy sources.

Japan

The Nikkei 225 rose 1.3% over the two weeks.

Japanese producer prices rose at their fastest rate on record in April, surging 10% from the previous year, according to the Bank of Japan.

Japan’s GDP shrank 1% on an annualised basis in the first quarter of 2022 as growth was hampered by Covid-19 restrictions and soaring commodity prices caused by Russia’s invasion of Ukraine.

The Japanese government approved a supplementary budget consisting of subsidies and cash handouts to low-income households to address rising oil and food prices.

The au Jibun Bank flash manufacturing purchasing managers’ index fell to a three-month low of 53.2 from 53.5 in April.

Pacific Basin

In Australia, the centre-left opposition led by Anthony Albanese won the general election. The result is not expected to shift the direction or pace of interest rate hikes.

China unveiled fresh stimulus measures, cutting its benchmark mortgage rate, the five-year loan prime rate, from 4.6% to 4.45% which is the largest cut on record. China’s top economic official also pledged “support” for technology companies, saying China “must support the platform economy, and sustain the healthy development of the private economy”.

Premier Li Keqiang said China’s economy could struggle to record positive growth in the current quarter, urging officials to help companies resume production after recent lockdowns. He added that corporate liquidation was up 23% in April.

Industrial profits in China dropped 8.5% in April compared to a year earlier, marking their worst decline since March 2020.

The Shanghai lockdown looks like it will be lifted on 1 June, although Chinese citizens are now banned from leaving the country for non-essential reasons.

Chinese retail sales tumbled 11.1% year on year in April, while industrial production dropped 2.9%, the first fall since March 2020.

Chinese tech shares continued to slump as Tencent reported its slowest sales growth since going public in 2004.

The Bank of Korea raised its base rate by 25 bps to 1.75%, the highest level since June 2019. It was the third such increase this year.

Emerging Markets

Turkey said it would not back Finland and Sweden’s bid for NATO membership.

Sri Lanka became the first Asia country to default on its sovereign debt since Pakistan in 1999.

Russia slashed interest rates to 11% from 14%. This marked the central bank’s third rate cut since early April as the rouble more than doubled against the US dollar from its March nadir.

Bonds

The 10-year US Treasury yield closed at 2.78%, having touched a one-month low of 2.71% and a high of 3.2% during the two weeks. The yield on the two-year note slipped below 2.5%, having risen above 2.8% earlier in the month.

The yield on the 10-year German Bund closed at 0.99%, while the 10-year UK Gilt closed at 1.96%.

Overseas investors will be granted access to China’s onshore exchange-based bond markets in Shanghai and Shenzhen from June 30.