Market Updates

In light of labor market tightness, BlackRock anticipate that profit margins will be squeezed, leading to increased pressure on earnings in the latter half of the year. They will focus on specific sectors and regions within developed market stocks, carefully identifying their preferred investment opportunities.

This week US earnings season starts, with several banks reporting. Focus will be on loan default data, given the rising cost of debt. Recent data shows filings for bankruptcies rising, so something to keep an eye on.

Markets have come around to the view that major central banks will not reduce interest rates any time soon. BlackRock are therefore going granular across asset classes, regions and sectors and are looking for new opportunities on the market.

Equity markets ended the first half of the year on a largely positive note, as investors shrugged off hawkish central banker comments. This week markets will have an eye on the Australian central bank interest-rate decision and the minutes from the last Fed meeting, which will be released on Wednesday.

Japan’s inflation rose due to the energy crisis from reducing reliance on Russian resources. BlackRock expects this to drive households towards seeking profitable investments, especially with new stock incentives. If the Bank of Japan adjusts its yield cap, higher bond yields could lead to Japanese investors bringing back their funds.

Last week, global equities retreated from recent highs. The European Central Bank’s global banking forum, the US Fed’s annual banking stress test, European Union CPI releases, China PMI and Japan CPI and Industrial Production reports could be key catalysts this week for the markets.

The Federal Reserve paused last week but pointed to more hikes on the way. The European Central Bank (ECB) raised rates and made clear it wasn’t done. Others hiked after earlier pauses. Sticky inflation looks to compel developed market central banks to crank policy rates higher – and keep policy tight for longer.

Global equities entered bull market territory last week. Investors took the weaker inflation data and the first Fed pause in a year as a positive, looking past Fed commentary about future hikes. Chinese stimulus hopes also helped to buoy global investor sentiment last week, with rhetoric suggesting further measures will be taken to boost China’s economy.

Around 100 portfolio manages, executives, and experts from BlackRock gathered in London for their semiannual forum to discuss the macro and market outlook. Forum attendees agreed the new regime of heightened volatility is playing out. Persistent inflation makes it unlikely developed market central banks will cut interest rates this year.

Focus shifts quite firmly this week to some key central bank policy decisions. On Wednesday, the Federal Reserve holds its policy meeting. On Thursday, the European Central Bank meets, and on Friday, we have the Bank of Japan rate decision.