Investment Institute
Weekly Market Update

Take Two: Fed’s Powell flags recession risk; Eurozone business growth slows

  • 27 June 2022 (5 min read)

What do you need to know?

The US Federal Reserve is “strongly committed” to bringing down inflation but a recession in the world’s largest economy is “certainly a possibility,” Fed Chair Jerome Powell said. In a speech to the Senate Banking Committee, Powell insisted the US economy was strong, and “well positioned to handle tighter monetary policy”, with the Fed waiting to see evidence of slowing price increases before it halts its current rate hike cycle. Elsewhere, UK inflation rose to 9.1% in May, its highest level in 40 years, while Canada’s annual inflation accelerated to 7.7%, the highest since 1983.

Around the world

The flash Eurozone composite Purchasing Managers’ Index (PMI) slowed to a 16-month low of 51.9 in June from 54.8 in May, reflecting supply chain disruptions and energy concerns due to the Ukraine war, as well as tighter financial conditions, data provider S&P Global said. Japan, meanwhile, saw its strongest rise in private sector output in seven months in June. The flash Jibun Bank composite Output Index rose to 53.2 from 52.3, as COVID-19-related restrictions eased. The Services Business Activity Index also improved, to 54.2 from 52.6, as international visitors returned.

Figure in focus: 40%

Germany moved to the ‘alarm stage’ of its emergency gas plan last week, in response to Russia’s cut to flows via the Nord Stream 1 pipeline across the Baltic Sea to just 40% of capacity. The change is a signal to businesses and consumers that difficulties may lie ahead – but the government stopped short of allowing utilities to pass on soaring costs to customers. As tensions continue over the war in Ukraine, German Economy minister Robert Habeck said the cut in supply had been “an economic attack”, though Russia blamed technical issues. Germany and the Netherlands are preparing to return to some coal-fired generation to address shortfalls this winter. 

Words of wisdom

Servant economy: A term for the wide range of on-demand services such as taxi apps and grocery delivery now available to consumers. Improvements in smartphone connectivity, a pool of flexible workers and the sudden need for businesses to enter or scale up home delivery during the COVID-19 pandemic have helped this become a broad investment theme of the past several years. Many companies in this area are now having to contend with rising fuel costs and lower unemployment.

What’s coming up

On Tuesday the US releases house price data, while the final estimate of US first quarter (Q1) GDP is published on Wednesday. Eurozone economic and services sentiment and consumer confidence surveys are also published Wednesday, as well as Japan’s retail sales for May. On Thursday, the final estimate of UK Q1 GDP is announced, alongside Eurozone unemployment for May. On Friday, a flash reading of Eurozone inflation for June is published, as is the China Caixin manufacturing PMI.

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