Global Market News

Global equities make gains 

Global equities made gains this week, bringing markets their best monthly performance since 2020 as they try to rebound. The S&P 500 and Dow Jones advanced 4.26% and 2.97% respectively, while the Nasdaq rose 4.70%. The yield on the US 10-year Treasury continued dropping, ending the week at 2.65%. On the other hand, the price of a barrel of West Texas Intermediate crude oil rose 3.95%, closing Friday at $98.44. Volatility, as measured by the CBOE Volatility Index, ended the week at 21.3.

US economy shrinks in Q2, Fed raises rates 0.75%

US GDP declined at a 0.9% annual rate in the second quarter, following a fall in Q1 of 1.6%. The contraction was driven by a decline in consumer spending and private inventories, as well as weaker housing and business sentiment. Two consecutive quarters of negative growth is typically defined as a recession, but the official decision is left up to the National Bureau of Economic Research (NBER) and it has not declared an official economic recession in the US. Nonetheless, the latest GDP report has increased recession fears. Also this week, the Federal Reserve raised interest rates by 0.75% as it continues to battle inflation.  

Updated Market Figures

International Developments

Xi warns Biden on Taiwan

According to Chinese state media, Chinese President Xi Jinping warned US President Joe Biden “those who play with fire will only get burnt”, referring to Taiwan. The Chinese military has said it would take strong countermeasures if a US delegation were to visit Taiwan, and US House Speaker Nancy Pelosi is planning a potential trip to the island next month. Xi’s warning to Biden came on a 2-hour phone call between the two leaders where they discussed various topics including the war in Ukraine, trade issues, and a possible in-person meeting. Tensions over Taiwan have risen, with many warnings from Beijing and several incidents of Chinese warplanes flying over Taiwanese airspace, but the US has not wavered in its support of Taiwan and its position against Beijing’s One China policy.

EU reaches natural gas deal 

The European Union has reached a deal to reduce natural gas consumption as it faces a potential energy crisis this winter and a possible shut-off of Russian gas flows. Under the agreement, EU countries agree to voluntarily limit their gas use by 15% from August to March, and such cuts could become binding in the case of a supply emergency, with the exception of some industries and countries. The deal comes as Russia’s Gazprom has slashed gas flows to Germany through the Nord Stream 1 pipeline in half. The energy chief of the EU has called the move “politically motivated”, but Gazprom claims the reduction is due to problems with a turbine. The war in Ukraine has exposed Europe’s dependence on Russian energy and vulnerability to supply shocks.

US Social & Political Developments

US offers prisoner swap with Russia

Secretary of State Antony Blinken announced that the US has offered to release Russian arms dealer, Viktor Bout, in exchange for the freedom of Brittney Griner and Paul Whelan. Brittney Griner, a WNBA player, was arrested in February after Russian customs officials said they found vape containers containing cannabis oil in her luggage. Paul Whelan, a former US Marine, was arrested in Moscow in 2018, convicted of espionage in 2020, and sentenced to 16 years in prison. Despite heightened tensions over the war in Ukraine, US officials proposed the swap several weeks ago, but the White House has not received a decision from Moscow. Blinken is expected to raise the highly publicized issue during a call with Russian Foreign Minister Sergei Lavrov. 

Schumer and Manchin reach preliminary spending agreement 

Senate Majority Leader Chuck Schumer and Senator Joe Manchin have reached a preliminary spending agreement. In a surprise to many, the two Democratic senators have released the details of a possible bill that addresses climate change, taxes, health care, and inflation. The possible deal is a major reversal for Democrats who had narrowed their expectations for the spending package after Manchin raised concerns over the size of the bill given the country’s record inflation. In a joint statement, the senators said the legislation – named the Inflation Reduction Act of 2022 – would invest approximately $300 billion in deficit reduction and $369.75 billion in energy security and climate change, and would continue expansions to the Affordable Care Act that passed during the pandemic. Next, the Senate will assess whether the proposal meets Senate budget rules. 

Corporate/Sector News

JetBlue reaches deal to buy out Spirit Airlines

JetBlue has reached a deal with Spirit Airlines to buy out the company in a $3.8 billion merger. The announcement follows a months-long bidding war that involved a vetoed deal with Frontier airlines and tit-for-tat accusations on both sides. However, “business is business” as Spirit CEO Ted Christie said, and the company is moving forward with JetBlue’s offer. When finalized the deal would make JetBlue the fifth-largest US airline. 

Big tech earnings 

Big Tech companies reported their quarterly earnings this week. Each earnings report reflected signs of a global economic slowdown, showing that high inflation, rising energy costs, and lingering supply chain issues are affecting every tech company. On the other hand, Big Tech companies have begun to rebound, and some companies, like Microsoft, are reporting double-digit revenue growth for 2023. Amazon has been hurt by short-term economic trends, but it surprisingly beat its own outlook for both sales and operating income. Alphabet had a near earnings miss as overall ad spending softens, but search advertising remains strong. However, the earnings reports of Facebook and Intel fell well below expectations and painted a complex outlook for the future. 

Chip bill advances through Congress

Congress passed the “CHIPS+” act this week, sending the bill to President Biden who has promised to sign it. The legislation, passed in a 243-187 vote in the House, aims to alleviate the chip shortage and bolster US competitiveness with China. The bill allocates $50 billion to the US semiconductor industry. 

Recommended Reads

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Source: Wall Street Journal