Take Two: Fed hikes as US enters technical recession, IMF cuts growth estimate
- 29 July 2022 (5 min read)
What do you need to know?
The US Federal Reserve raised the Fed Funds Rate by 75 basis points to 2.25%-2.5% last Wednesday, in a move largely expected by markets. Fed Chair Jerome Powell signalled a similar hike could follow in September. The following day official data showed the US economy had shrunk for the second quarter in a row – an indication of technical recession in many countries – with GDP down 0.9% in the second quarter (Q2) after a 1.6% drop in Q1. Ahead of the release, Powell had cast some doubt on how representative of conditions the GDP numbers might be – and stressed that the Fed was still “highly attentive” to inflation risks.
Around the world
The International Monetary Fund (IMF) cut its global growth forecast to 3.2% this year and 2.9% next year, 0.4 and 0.7 percentage points respectively lower than its last assessment in April. Inflation, a slowdown in China and the war in Ukraine have resulted in “an increasingly gloomy and uncertain outlook”, it said. The IMF also raised the possibility of an even sharper slowdown, if certain risks emerge, including a full shutdown of Russian gas flows to Europe. Under this “plausible alternative scenario”, global growth could decelerate to around 2.6% this year and 2% next, it warned.
Figure in focus: 0.7%
Eurozone GDP grew 0.7% in Q2, as the bloc’s economy held up better than expected in the face of soaring inflation and the impact of Russia’s invasion of Ukraine. France avoided recession after beating forecasts to report 0.5% growth in Q2 following a 0.2% contraction in the previous quarter. The German economy stalled, recording 0% growth in Q2. Meanwhile, inflation in the Eurozone rose to a new record high of 8.9% in July, from 8.6% in June, with energy prices continuing to rise. Last week Russia further reduced the gas flow through the Nord Stream 1 pipeline, giving rise to fresh concerns over a looming energy crisis.
Words of wisdom: Dogger Bank
The name given to a shallow part of the North Sea that will house what is expected to be the world’s largest offshore windfarm. Work began last week on the project which will see 277 turbines installed about 100 miles off the UK coast near Yorkshire. Completion is scheduled for 2026, when the site should be able to generate enough power for six million homes. The area likely gets its name from Dutch trawlers known as doggers that used to operate in the fertile fishing grounds.
What’s coming up?
Eurozone unemployment numbers covering June arrive on Monday while on Tuesday the Reserve Bank of Australia meets to decide on interest rates – at its July meeting, it upped the cash rate by 50 basis points (bps) to 1.35%. A spate of final Purchasing Managers’ Indices for July land on Wednesday, including those covering Japan, the Eurozone and US. After hiking rates by 25bps to 1.25% in June, the Bank of England once again convenes on Thursday to decide on monetary policy. On Friday the US updates the market with its latest job numbers.
Disclaimer
This website is published by AXA Investment Managers Asia Limited (“AXA IM HK”), an entity licensed by the Securities and Futures Commission of Hong Kong (“SFC”), for general circulation and informational purposes only. It does not constitute investment research or financial analysis relating to transactions in financial instruments, nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy, sell or enter into any transactions in respect of any investments, products or services, and should not be considered as solicitation or investment, legal, tax or any other advice, a recommendation for an investment strategy or a personalised recommendation to buy or sell securities under any applicable law or regulation. It has been prepared without taking into account the specific personal circumstances, investment objectives, financial situation, investment knowledge or particular needs of any particular person and may be subject to change at any time without notice. Offering may be made only on the basis of the information disclosed in the relevant offering documents. Please consult independent financial or other professional advisers if you are unsure about any information contained herein.
Due to its simplification, this publication is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee such opinions, estimates and forecasts made will come to pass. Actual results of operations and achievements may differ materially. Data, figures, declarations, analysis, predictions and other information in this publication is provided based on our state of knowledge at the time of creation of this publication. Information herein may be obtained from sources believed to be reliable. AXA IM HK has reasonable belief that such information is accurate, complete and up-to-date. To the maximum extent permitted by law, AXA IM HK, its affiliates, directors, officers or employees take no responsibility for the data provided by third party, including the accuracy of such data. This material does not contain sufficient information to support an investment decision. References to companies (if any) are for illustrative purposes only and should not be viewed as investment recommendations or solicitations.
All investment involves risk, including the loss of capital. The value of investments and the income from them can fluctuate and that past performance is no guarantee of future returns, investors may not get back the amount originally invested. Investors should not make any investment decision based on this material alone.
Some of the services listed on this Website may not be available for offer to retail investors.
This Website has not been reviewed by the SFC. © 2023 AXA Investment Managers. All rights reserved.