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Global Economies, Markets in Red Zones



Global Economies, Markets in Red Zones

The performances of some of leading economies and markets in the world were bearish last week following negative signals instigated by factors ranging from lingering coronavirus to lingering ripples of Russia-Ukraine War.

Specifically, the Chinese National Bureau of Statistics (NBS) reported that China’s composite Purchasing Managers’ Index (PMI) of the country slowed for the second consecutive month to 51.7 points in August (July: 52.5 points).

Experts highlighted that the slowdown in private sector activity is in line with the triplet factors of resurgence of new COVID-19 infections and the associated lockdowns in some cities; lingering property sector woes; and power shortages as the country battles with its worst heatwave in decades.

Notably, 28 cities in China that account for about18% of the country’s gross domestics product (GDP) were under full or partial lockdowns as of the end of August.

Accordingly, the non-manufacturing PMI (52.6 points vs July: 53.8 points) weakened to its lowest level in four months while the manufacturing PMI (49.4 points vs July: 49.0 points) remained below the 50-point threshold.

In the short term, analysts expect overall private sector activity to remain subdued given the renewed restrictions in line with the government’s zero-COVID policy, weakening external demand, soft consumer spending, and the lingering real estate wobbles.

Elsewhere, soaring food and energy prices continue to ensure Euro Area’s consumer prices rise to record highs, and as such, widening the European Central Bank’s (ECB) dilemma amidst recession risks.

According to the flash estimates from Eurostat, headline inflation in the Euro Area broke a new record high, increasing to 9.1% year-on-year in August against 8.9% in July.

More recently, knock-on effects of recent heatwaves across the continent contributed to the increased prices in addition to the pre-existing factors – elevated energy costs and higher food prices.

Consequently, pressures remain significant in the prices of energy at 38.3% year-on-year; food at 10.6% from 9.8% in July; and non-energy industrial goods at 5% versus 4.5% in July.

“We expect consumer prices to remain significantly above pre-pandemic levels over the short-to-medium term, increasing the pressure on the ECB to maintain its interest rate hiking cycle.

“Indeed, the current market expectation is for the Governing Council of the ECB to raise the key policy rates by at least 50bps at its next policy meeting on 08 September,” analysts at Cordros Capital said.

Global Markets

Similarly, global stocks posted bearish performances as hawkish central banks, fresh lockdowns in China and heightened geopolitical uncertainties drove risk-off sentiments.

Accordingly, the US stock market saw S & P 500 index dip by -3.29% week-on-week and 17.66% year-to-date (YTD) to close at 3,924.26 basis points.  The DJIA index also dipped by 1.9%  as investors assessed the pace of interest rate hikes.

Likewise, European equities (STOXX Europe: -2.37% and FTSE 100: 1.9%) recorded weekly loss as worries of slowing global growth and energy supply shortages arising from the Russia-Ukraine war dampened sentiments.

In Asia, the Nikkei 225 (-3.5%) tracked the broad selloffs on Wall Street. Conversely, the SSE (-1.5%) posted its third consecutive weekly loss as wider COVID-19 lockdowns in China reignited concerns about production curbs and corporate earnings fallouts.

Elsewhere, Emerging (MSCI EM: -3.0%) and Frontier (MSCI FM: -1.9%) markets mirrored the downbeat mood across global equities consequent upon losses in China (-1.5%) and Kuwait (-2.0%), respectively.

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