FO's Perspectives Weekly Newsletter 1st - 7th August
China responds to US visit to Taiwan and Bank of England warns of a long-recession...
Stock Market review
US
The US Stock market ended the week up as a surprisingly strong labour market report and wage growth continued the current stock market rise from last month.
Weekly Returns:
S&P 500: Up 0.36%
Dow: Down 0.3%%
Nasdaq: Up 2.15%
Want to know what each index is? You can find out here
Europe
European stock market ended a mixed week slightly up as strong US jobs growth and surprisingly good French and German manufacturing output helped end the week up after rising interest rates and inflation had initially set most indices down.
Weekly Returns:
FTSE 100: Up 0.22%
DAX: Down 0.67%
Stoxx 600: Up 0.59%
Finance
The Bank of England increase interest rates to 1.75% as it warns that the UK will fall into recession
What happened?
The bank of England rose interest rates by the highest amount in 27 years as they forecasted the UK economy to shrink in the last three months of this year and keep shrinking until the end of 2023. The expected recession would be the longest downturn since 2008, when the UK banking system faced collapse, bringing lending to a halt.
Governor Andrew Bailey said he knew the cost of living squeeze was difficult but if it didn't raise interest rates it would get "even worse". The main reason for high inflation and low growth is soaring energy bills, driven by Russia's invasion of Ukraine.
How do rising interest rates help with inflation?Increasing interest rates is one way to try and control inflation as it raises banks’ interest rates which will increase borrowing costs and should encourage people to borrow and spend less. It can also encourage people to save more.
However, many households will be squeezed further following the interest rate rise including some mortgage-holders.
BP Profits have tripled to the highest amount in 14 years as Brits endure soaring energy prices
What happened?
Oil giants BP announced that their quarterly profit tripled to £7bn, following on from the like of Centrica and Shell who also announced record-breaking profit as rising energy prices has seen energy providers rake in record prices
What’s the bigger picture?
With the rising energy prices and record levels of inflation, there has been a significant backlash on seeing energy prices making record levels of profit as large swaths of the population face a cost of living crisis.
There is a feeling that the government is not doing enough to protect customers and this is evident with news that the energy price cap is set to reach £3,420 in October after already increasing 54% to £1,971 in April. This is in contrast to other countries like France who have taken a harder stance in protecting customers where they forced the state-owned energy provider, EDF, to cap wholesale price rises to 4% for a year, at a cost of €8.4bn (£7bn).
IMF slashes global growth prospects, now expecting the global economy to grow by only 3.2% this year, a downgrade from the 3.6%
Consulting company Bain has been barred from working for the UK government due to its role in a South African government corruption scandal
Trading platform Robinhood is cutting nearly a quarter of its staff due to high inflation and the falling cryptocurrency market.
SPAC market hits a wall as issuance dries up and valuation bubble bursts
The US economy surprisingly added 528,000 jobs last month despite rising inflation and technically falling into a recession.
Politics
1. China is halting cooperation with the US in several key areas including climate change, military talks and efforts to combat international crime following Nancy Pelosi’s trip to Taiwan.
What happened?
In response to Nancy Pelosi’s visit to Taiwan this week following their warning over it, China has retaliated by halting cooperation with the US in a number of key strategic areas. This was the latest in a line of retaliatory actions following the visit with China already kicking off its biggest-ever military exercises in the seas around Taiwan a day after Pelosi left.
The bigger picture ?
The recent event is the latest event over the sovereignty of Taiwan which the US and China disagree over. China sees self-ruled Taiwan as a breakaway province while Taiwan - which has its own democracy and constitution - claims it is its own sovereign nation which the US currently supports.
Tory candidate Liz Truss has backtracked on her plans to cut civil service by £11bn by cutting civil service pay outside of the southeast following national backlash.
First grain export from Ukraine has left since the war began following an UN-brokered agreement signed by Russia and Ukraine
Al Qaeda leader Ayman al-Zawahiri was killed in a US drone strike this week
The Uk parliament has closed its Tiktok account over security fears with the firms’ close links with the Chinese government
Former Tory leadership contestants Sajid Javid and Penny Mourdant have come out in support of Liz Truss in what is a big blow to Rishi Sunak’s leadership hopes.
A clip has emerged of ex-Chancellor Rishi Sunak saying he diverted public money from "deprived urban areas".
The US has urged Moscow to accept a deal to free basketball player Brittney Griner, who has been sentenced to nine years in a Russian prison.