Commentary: Global equities break the winning streak
All major global equity indices lost the ground last week, as macroeconomic data and central bank activity created rising concerns over global economic prospects. Large-caps outperformed their smaller peers, as Russell 2000 lost -2.9% w/w, around twice as much as S&P 500. Among large-caps, the mega-cap stocks delivered better performance, with traditional S&P 500 outperforming S&P 500 equal weight index, which lost 2.3%.
Last week’s downturn had several underlying reasons. Firstly, the Federal Reserve Chairman Powell stated that, as of now, almost all policymakers advocate two more 25bps hikes in 2023. This is despite the gradual weakening of the US labor market, as indicated by elevated weekly jobless claims. Secondly, economic activity has shown decline, with both manufacturing and services PMIs falling in June.
In Europe, central banks look increasingly hawkish. While BoE delivered a surprise hike of 50 bps, Swiss and Norwegian central banks followed the suit and increased the base rates to 1.75% and 3.75%, respectively. Moreover, economic activity shows weakness in Europe as well, as both services and manufacturing PMIs surprised on the downside, with manufacturing showing deeper contraction.
