Investment Institute
Weekly Market Update

Take 2: US Fed hikes rates to tame inflation, EU plans phase out of Russia oil

  • 09 May 2022 (3 min read)

What do you need to know?

The US Federal Reserve delivered an as-expected 50-basis-point (bp) hike in the Fed Funds Rate, to 0.75%-1% and confirmed the unwinding of its balance sheet from June. However, it played down the possibility of larger hikes as it wrestles with steep inflation and slowing growth. Fed Chair Jerome Powell said policy makers would “expeditiously” tighten monetary policy and that he saw a good chance of a “softish” landing, but US stocks sold off nonetheless. The Bank of England raised rates by 25bp to 1%, their highest in 13 years and the fourth consecutive increase since December, while Australia raised rates for the first time in more than a decade. 

Around the world

China saw a sharp slowdown in business activity in April, following a resurgence of COVID-19 cases and subsequent lockdowns in the country. The Caixin China composite Purchasing Managers’ Index (PMI) fell to 37.2 from 43.9 in March – a reading below 50 indicates contraction. The fall was the second-sharpest on record, with a greater decline seen only in February 2020 at the start of the pandemic. Both manufacturing and services PMIs were at their lowest level since then as COVID-19, supply chain problems and inflationary pressures took their toll.

Figure in focus:

Eurozone unemployment fell to a record low of 6.8%, as companies continued to hire as they recovered from the effects of the pandemic. The impact of the war in Ukraine and slower expectations for economic growth could take time to be reflected in employment data, analysts believe. Meanwhile, Eurozone retail sales fell in March at a faster rate than expected, led by a 2.9% dip in automotive fuels. The overall volume of retail trade was down 0.4% from February versus a consensus forecast of just -0.1%. 

Words of wisdom

The European Union (EU)’s plan to secure energy independence from Russia and accelerate the pace of decarbonisation. The plan was unveiled in March as the conflict in Ukraine escalated and as clear problems emerged around gas supplies. The EU gets about 45% of its gas from Russia and European Commission President Ursula von der Leyen said at the time: “We simply cannot rely on a supplier who explicitly threatens us.” Last week, she announced plans to phase out Russian crude oil within six months, and refined products by the end of the year.

What’s coming up

On Monday the Bank of Japan publishes the minutes of its most recent monetary policy meeting, while China trade data for April are also announced. Tuesday sees the ZEW Economic Sentiment Index for the Eurozone released, followed on Wednesday by April’s inflation numbers for China and the US. A preliminary estimate for first quarter UK GDP growth lands on Thursday while on Friday, Eurozone industrial production numbers and France’s inflation data for April are reported. 

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