Market Report - What’s Going on Out There? 🌎

In this article, EasyEquities Business Analyst Divan Van Der Merwe highlights the most burning topics that have been unfolding in the global markets over the past few weeks

United Kingdom Inflation Numbers 

First up, let’s talk cold and gloomy, and no, I’m not referring to their weather; I’m referring to the market conditions in the United Kingdom. The FTSE 100 shed 4.61% in the past two months and is flat year to date. Not the “comeback year” the market was expecting after the bullish rally to close out 2022. It’s safe the say 2023 is not picking up what 2022 was putting down. Why though?

After record rate hikes from the Bank of England (BOE), inflation does not seem to be slowing down as much as the market hoped. The BOE has raised the interest rate 12 times in a row since December 2021 from 0.1% to 4.5%. Yet UK inflation is sitting at 8.7%, exceeding expectations again. This is piling pressure on the government and BOE to continue the rate hike cycle. As a result investors may have to make themselves comfortable, because the wait for rate cuts and bullish market conditions are far from over. On Thursday, 22 June, the BOE hiked rates by 25 basis points to 5%. 

In conclusion, the UK market knows where they sit; they have accepted a sideways market, and, in my opinion, it will take exceptionally good news to get this market bullish again. This can be seen by the FTSE 100’s lacklustre performance compared to the US indices.

It is worth saying that the FTSE 100 could be an option for a very long play, with the hopes that the FTSE 100 could start closing the gap on its US counterparts and the Great British Pound sees some strength if the US market turns bullish.

Latest US events

It’s no secret that the US-China relationship has been under pressure since 2018 and that every visit to China just seems to make things worse. 

Without diving too deep into the entire history of the US-China trade war, let’s focus on the latest events. In the latest meeting, Secretary of State Antony Blinken met with Chinese President Xi Jinping to “soothe strained ties with Beijing”. For a change, the talks seemed to have gone rather well with President Biden expressing his excitement on the progress made with public statements such as “Antony Blinken “did a hell of a job” in Beijing” and “We’re on the right trail here”. 

Believe it or not, one day later Biden labelled Chinese President Xi a dictator at a fundraiser in Kentfield, California, drawing a harsh response from China and creating a potential diplomatic setback.

That being said, the US market has pushed on, ignoring most of the noise and with the S&P 500 and Nasdaq 100 posting 14.03% and 37.35% year to date, respectively. This comes as a result of relentless rate hikes similar to the BOE but with much better results. The Federal Reserve has managed to pull inflation down to 4.05% from 8.35% a year ago. Today Federal Reserve Chairman Jerome Powell Stated that more interest rate increases are likely ahead as inflation is “well above” where it should be and that getting inflation back to 2% has a long way to go. 

These are signs of a good plan that is working, and that the Fed has no plan of slowing down until their target is reached. This decision might cause temporary pain in the market but is paramount for a lasting bullish market in the future.