Week in Review: July 1, 2022

Equity markets ended the week lower, spurred on by increasing recession concerns. Economic data was mixed, providing both bulls and bears with evidence to support their respective views. Comments by Federal Reserve Chair Jay Powell reinforced the Fed’s commitment to tackling inflation but provided little specific insight into future Fed actions. Fixed income returns were positive, aided by a decline in interest rates which saw the 10-Year Treasury yield fall to its lowest level since late May.

China’s economy reaccelerated in June as both the manufacturing and services sectors expanded for the first time since February. The improvement followed the lifting of various COVID-19 restrictions around the country. Those restrictions had impacted not only Chinese economic growth, but also global supply chains. How sustainable the rebound will be is uncertain, as President Xi Jinping remains committed to the country’s strict Zero-COVID policies. In recent comments, Xi said he would rather endure temporary growth setbacks than “harm people’s health.” As part of its current reopening, China reduced its mandatory quarantine for foreign travelers from two weeks, to one.

Speaking at a European Central Bank (ECB) conference, Fed Chair Jay Powell stated that the process of raising rates to tackle inflation is “highly likely to involve some pain but the worst pain would be from failing to address this high inflation and allowing it to become persistent.” That was largely in line with prior comments by Powell in which he stated that the Fed hopes to achieve a “soft landing” whereby it raises rates enough to cool inflation without causing a recession, a feat Powell has admitted will be “very challenging.”