Markets in a minute 26th June 2023

Last week, the S&P 500 fell by 1.4% (MTD 4.1%, YTD 14.2%), while the Euro Stoxx 50 was down by 2.7% (MTD 1.3%, YTD 15.7%). Equity markets were weaker as investors took profits on recent gains and lacklustre Eurozone PMI data weighed on sentiment.

Eurozone PMI data suggested a slowdown. The composite index fell close to 50.3, a five-month low. A PMI level above (below) 50 indicates an expansion (contraction) in activity. There was a sharp slowdown in the services sector, leaving uncertainty around the economic recovery in the region.

The Bank of England surprised markets with a 50bps increase in its key rate to 5.0% compared to a projected rise of 25bps. This followed May consumer price data, showing a headline rise of 8.7% yoy and an acceleration in core prices to 7.1% - both were above consensus expectations.

Chair Powell's semi-annual testimonies in Washington were somewhat hawkish, stating that “inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go.” He suggested that that two more rate hikes this year are likely at this stage.

The prospect of tighter policy pushed bond yields higher and prices lower (bond prices fall as yields rise), but yields fell back and bond prices rose after the release of PMI data.

This week, there is a lot of data released from the Eurozone, with highlights including June consumer prices and consumer sentiment surveys, May labour data and German retail sales. Fed Chair Powell also speaks on Wednesday.