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Ormiga Capital Admin

Ormiga Weekly Market Update: 23rd June 2023

US

US Stocks experienced a declined this week as investors grappled with the anticipation of further interest-rate hikes from the Federal Reserve, following Fed Chair Jerome Powell's reiterated stance on the need for rate increases to address inflation. Concerns about the potential impact of inflation on global economies have resurfaced, although Treasury Secretary Janet Yellen expressed a reduced risk of a recession in the United States. The pressure on policymakers has been emphasized by a significant increase in a key measure of Japanese inflation this week.


The Nasdaq's weekly loss marked its first decline in eight weeks. The market losses were prompted by Powell's testimony on Capitol Hill, where he presented a hawkish outlook for future interest rate hikes in 2023. Powell indicated that a substantial majority of the committee believes it would be appropriate to raise the federal funds rate once or twice by the year's end. The final decision will be guided by the available data making next month’s inflation readings ever more important and all eyes will be on corporations next week as earnings season begins again.


Parents were dealt an additional blow this week as US toy giant Hasbro announced it was bringing back the iconic Furby robotic creature, which was hugely popular when it was launched a quarter of a century ago.


Mexico

In a unanimous decision Banxico has, for the second straight meeting, decided to leave interest rates unchanged at 11.25% and reported that the pause will last at least until August. Bucking a global trend, inflation in Mexico is currently running ay 5.31%, its lowest level since 2021.


The Mexican peso has demonstrated impressive performance this year, surging by 12% against the U.S. dollar, following a 5% increase last year. This positive trend is expected to continue due to the influx of capital attracted by higher yields resulting from the central bank's interest rate hikes. However, analysts surveyed by Citibanamex are not so optimistic, expecting the peso to slide to 18.70 pesos, by the end of this year.


The recent strengthening of the peso, currently at around 17 pesos per U.S. dollar compared to 19.50 pesos per dollar in December, may have adverse effects on Mexican exports. Analysts warns that a prolonged appreciation of the peso could lead to a slowdown in exports, as they become more expensive and a reduction in remittances to Mexico from abroad. In April, exports experienced a 2.9% year-on-year decline.


Europe In the UK Economists are issuing a warning that the current mortgage crisis will have severe consequences, eradicating the savings of approximately 1.2 million families this year and driving many into insolvency. The National Institute of Economic and Social Research (NIESR) projects that households needing to remortgage will experience a staggering increase of nearly 50% in their bills. As a result, the total number of families without any savings is expected to reach 7.8 million, comprising 28% of all households.


This cautionary statement follows the unexpected decision by the Bank of England to raise its base rate by 0.50%, double the anticipated rise, to 5% on Thursday. NIESR indicates that when fixed-rate mortgage deals expire, monthly repayments for two million families will increase on average from £700 to £1,000, while those with variable rates will witness an average rise from £450 to £700.


On Tuesday, the Paris offices of five French banks were subject to searches by authorities, prompted by suspicions of aggravated tax fraud. The French National Financial Prosecutor's Office revealed that these raids were part of ongoing investigations initiated in December 2021. The investigations focus on allegations of money laundering and tax fraud associated with dividend payments. Although the specific banks targeted were not disclosed by the prosecutors, it has been reported in the French media that the institutions subjected to searches include HSBC, BNP Paribas, Exane (a subsidiary of BNP), Societe Generale, and Natixis.


Asia

Following Secretary of State Antony Blinken's meeting with Chinese President Xi Jinping, which reportedly resulted in progress to ease tensions, President Biden referred to China's leader as a "dictator." This remark prompted a swift response from the Chinese foreign ministry, rebuking the statement.


Meanwhile, Prime Minister Narendra Modi is currently in Washington for a state visit, which occurs in the aftermath of Bidens comments. Although neither Biden nor Modi explicitly framed their engagement as solely focused on containing the China challenge, the underlying message is evident. According to officials, the purpose is to uplift a burgeoning power, the largest democracy in the world albeit imperfect, while highlighting the positive momentum in the relationship based on shared interests.


In May, Japan witnessed core consumer inflation surpassing expectations, accompanied by a remarkable annual growth rate in an index excluding fuel costs, which marked the fastest pace in 42 years. This development underscores the widening influence of price pressures, thereby intensifying the pressure on the central bank to gradually withdraw its substantial stimulus measures. The rise in inflation primarily stems from consistent price increases in essential commodities and everyday necessities, which analysts believe will weigh on household consumption due to the mounting cost of living.




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