Last week was another volatile week for equity markets. We started off with the Fed minutes showing the Fed would put its breaks of rate hikes this year and we ended it with a huge surprise in the US jobs number which made investors re-think the possibility of a rate hike in the US.
But it wasn’t the US alone that created volatility in equity markets. The uncertainty of Brexit as well as disappointing data out of Germany led to a spike in volatility.
Below is a better understanding of what really went on during the week:
Fed minutes
Federal Reserve officials are in a holding pattern heading toward their July policy meeting, following the release of mixed economic data and the vote by the United Kingdom to exit the European Union.
Fed governor Daniel Tarullo said Wednesday the central bank should wait for more convincing evidence that inflation is closer to—and would remain near—the Fed’s 2% target before raising short-term interest rates again. He also warned that because rates are still so close to zero, the Fed has limited tools to respond if the economy slows down, another factor that argues for a wait-and-see approach.
US jobs data
U.S. employers added 287,000 jobs in June, a surprisingly strong showing. The unemployment rate nonetheless rose to 4.9 percent from May's 4.7 percent level as the labor participation rate rose.
Economists were not expecting even a strong report to prompt a July interest rate hike from Federal Reserve policymakers.
German exports disappoint
German exports fell unexpectedly in May, posting their steepest monthly decline in nine months, and imports rose less than expected, data showed on Friday, in a further sign that weak global demand is curbing growth in Europe's largest economy.
The disappointing trade figures fleshed out a picture of economic weakness in Germany after data released earlier this week showed industrial output posted its biggest monthly drop in nearly two years and orders also came in weaker than expected.
Oil hits two month low
Oil prices rebounded on Friday, bouncing off two-month lows hit in the previous session when prices fell 5 percent on news that the U.S. weekly crude draw missed some forecasts.
Traders said that the outlook looked volatile as a refined product glut and slowing economic growth weighed on markets while the risk of supply disruptions could tighten supplies.
The next UK PM - May or Leadsom?
British lawmakers Theresa May and Andrea Leadsom will go through to a vote of Conservative Party members to decide who succeeds Prime Minister David Cameron.
Interior minister May topped the second round of voting by lawmakers, winning the support of 199 of her colleagues, while junior energy minister Leadsom came second on 84.
Brexit campaigner and justice minister Michael Gove was eliminated from the race after coming third with 46 votes.
GBPUSD close to 31-year low
Sterling steadied on Friday less than two U.S. cents away from a 31-year low, having put in its worst three-weekly performance since the currency's 1992 crisis, following Britain's shock vote to leave the European Union.
On Friday it inched up 0.1 percent to $1.2930, leaving it 13 percent down from just before the results of the June 23 ballot started being released. That also left the pound on track for an almost 10 percent fall in the past three weeks - its steepest decline since September 1992, when Britain fell out of the pre-euro Exchange Rate Mechanism.
This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.