Market Update

Despite ending the week with a slight decline, Friday saw a strong finish as market expectations for Fed rate hikes started to moderate.
Early in the week, Chinese export data painted an impressive picture, showing a year-on-year increase of 17.9%. This figure not only exceeded last month's reading but also surpassed forecasts. It marks the swiftest growth in exports in five months, partly attributed to the alleviation of supply chain disruptions caused by the lingering effects of Covid-19, which have been a factor contributing to inflationary pressures.
In the United States, the Consumer Price Index (CPI) for June showed an increase of 9.1%, up from the previous reading of 8.6%. Market attention is now directed toward the Federal Reserve in anticipation of its upcoming interest rate decision on July 27th. Given the drivers behind the inflationary pressures, we continue to believe that any interest rate increases will be gradual and measured.
The UK saw the release of May's GDP data, which displayed positive growth. The UK's economy expanded by 0.5% in May, a significant improvement compared to April's reading, which had dipped slightly into contraction territory at -0.2%. The growth in May was bolstered by health-related activities, particularly NHS appointments. Although certain sectors weighed on GDP, the notable gains in construction and manufacturing suggest that supply chain disruptions are gradually easing.
Addressing supply chain issues, positive talks hosted by Turkey this week aimed to resolve the blockade on Ukrainian grain exports. Ukraine, often referred to as "the breadbasket of Europe," plays a crucial role in global grain production. The release of some of Ukraine's grain reserves is expected to alleviate some of the inflationary pressures related to food prices.
Exactly one week after UK Prime Minister Boris Johnson's resignation, Gotabaya Rajapaksa, the President of Sri Lanka, submitted his resignation amidst protests over his alleged mishandling of the country's economy. Sri Lanka has been grappling with shortages of essential supplies, including food and fuel.
In another instance of political turmoil, Mario Draghi, the highly regarded Prime Minister of Italy, tendered his resignation on Thursday after an ally withdrew support. Although the President of Italy rejected his resignation and requested him to seek a parliamentary majority, this episode may introduce uncertainty into Italian markets.
To summarize, we've witnessed three attempted leadership resignations in the span of seven days: Boris Johnson, Gotabaya Rajapaksa, and Mario Draghi, with two being successful and one narrowly averted. As the song goes, "two out of three ain't bad," as famously sung by Meat Loaf.
Additionally, this week, Japan's Prime Minister Fumio Kishida expressed his intention to restart several nuclear reactors, possibly up to nine, to bolster global energy supply. This move aims to reduce Japan's reliance on imports and address potential energy shortages in preparation for the upcoming winter. In light of Russia's invasion of Ukraine, Japan is reducing its energy imports from Russia.