Equities see the worst week of 2023 as the growth outlook darkens

Large- and small-cap companies diverged once again on Thursday, with the S&P 500 and Nasdaq Composite rising for the first time in four sessions while the small-cap Russell 2000 dropped to a more than two-week low, as investors fretted about recession risks and more interest-rate warnings from Federal Reserve Chair Jerome Powell.  Oilfield services and other energy industry shares were particularly weak as crude oil futures dropped more than 4% because of concerns a recession may hurt fuel demand.  Real estate and financial shares were also among the weakest sectors.  Technology and consumer discretionary shares were among the strongest performers.  Meantime, European shares closed in negative territory for the fourth consecutive session yesterday, with the Euro Stoxx 50 Index falling 0.4% to 4.304 points. 

Summary for 23.06.2023 

• Asian equity markets fell on Friday, with most benchmark indices set to end the week lower as investor sentiment took a hit from aggressive monetary tightening and hawkish messaging from major central banks.  Meanwhile, markets assessed data showing manufacturing activity in Australia and Japan contracted in June, while Japanese inflation slowed in May.  Shares in Australia, Japan, South Korea, and Hong Kong all declined.  Markets in mainland China remain shut for a holiday. 
• European and US equity futures look set to open lower to round off a gloomy week. 
• Oil prices fell slightly this morning after a sharp tumble in the prior session as fears of rising interest rates and worsening economic conditions wiped out all gains made this week.  Crude prices were nursing a 4% tumble from Thursday as further monetary tightening and hawkish messaging from major central banks hurt the outlook for the global economy and energy demand. 

• The annual inflation rate in Japan unexpectedly declined to 3.2% in May from April’s 3-month high of 3.5%, missing market forecasts of 4.1%.  Core inflation also dropped to 3.2% in May from a 3-month peak of 3.4% in April, compared with forecasts of 3.1%, staying outside the Bank of Japan’s 2% target for the 14^th month.  On a monthly basis, consumer prices were flat in May, after a 0.6% rise in April which was the steepest pace since April 2014. 
• The Bank of England (BoE) raised its policy interest rate by 50 basis points yesterday to 5.0%, marking the 13^th consecutive hike.  This decision surprised market expectations of a smaller 25 basis point rate hike and pushed borrowing costs to their highest level since the 2008 financial crisis.  Policymakers also pledged to deliver further rate hikes if the ongoing inflationary pressures persist.  The BoE initiated the rate hikes nearly a year and a half ago, making it the first major central bank to take such action and resulting in the fastest policy tightening in over 30 years. 
• US Treasury Secretary Janet Yellen said in an interview that she sees diminishing risk for the US to fall into recession and suggested that a slowdown in consumer spending may be the price to pay for finishing the campaign to contain inflation.  
• The Central Bank of Turkey raised its benchmark one-week repo rate by 650 bps to 15% yesterday, pushing borrowing costs to the highest since November 2021.  Markets were expecting a bigger increase to 21%.  It marks a reversal from President Tayyip Erdogan’s unorthodox economic policies, with assignments of Hafize Gaye Erkan as the head of Turkey’s central bank, and Mehmet Simsek as the new Treasury and Finance Minister.  The Committee decided to begin the monetary tightening process to establish the disinflation course as soon as possible, to anchor inflation expectations, and to control the deterioration in pricing behavior.  
• Amazon shares were yesterday reiterated as a “buy” by JPMorgan, which noted an opportunity for further growth in Amazon Prime.  Amazon shares rose 4.3% during Thursday’s session, hitting a 40-week high of $130. 

• Shares of British online supermarket and technology group Ocado surged more than 30% yesterday following reports of interest from multiple US suitors, including Amazon, regarding a potential bid for the company.  
• Anheuser-Busch InBev shares were upgraded to “buy” from “hold” by Deutsche Bank, which noted fading headwinds from the recent backlash against Bud Light.  The beermaker’s shares rose 2%. 
• Eli Lilly shares rose after Bank of America reiterated the shares as a “buy”, saying it was still the firm’s favorite in the biopharmaceutical space.  Eli Lilly shares rose 1%. 
• Tesla had a choppy session yesterday after Morgan Stanley downgraded the electric-vehicle giant to an “equal weight” rating “overweight,” citing valuation concerns.  Tesla shares still rose 2%.