💡Quote of the week
“Central bankers are too fixated on 2% inflation targets. Such precision isn’t useful in an economic system that has been subjected to a sequence of pandemic-inspired lockdowns followed by relentless monetary and fiscal stimulus. Inflationary impulses are starting to wash out of the system, so more flexibility is needed.” - Bloomberg Opinion columnist Marcus Ashworth
🏦 🇺🇸 More rate hikes ahead. In their June meeting, Fed officials made the call to hold off on raising interest rates, opting for a pause to assess 10 previous rate hikes before making any further moves. Yet, the U.S. central bank sees more rate hikes ahead, but at a slower pace. (CNBC)
The minutes released on Wednesday showed disagreement among the members. Some of them believed that interest rates should be increased because inflation is still pretty high.
“The economy was facing headwinds from tighter credit conditions, including higher interest rates, for households and businesses, which would likely weigh on economic activity, hiring, and inflation, although the extent of these effects remained uncertain,” the minutes said.
📃U.S. jobs data out. In June, there was a big jump in private sector jobs, with 497,000 new positions created. This was a significant improvement compared to the 267,000 jobs added in May and surpassed the estimated 220,000 jobs. This unexpected jump in payrolls comes despite more than a year’s worth of Fed interest rate hikes. (CNBC)
“Consumer-facing service industries had a strong June, aligning to push job creation higher than expected. But wage growth continues to ebb in these same industries, and hiring likely is cresting after a late-cycle surge,” said Nela Richardson, chief economist at ADP.
⭐ Gold on track for a 4th consecutive weekly loss as the precious metal has been pressured by recent U.S. job data and the strong statements made by Fed officials, suggesting that interest rates will stay high for longer.
Spot gold went up by 0.1% to reach $1,912.75 per ounce but ended up down by 0.3% for the whole week. Meanwhile, U.S. gold futures increased by 0.2% to $1,918.60.
“A resilient and tight U.S. jobs market effectively strengthens the case for the Fed to keep pushing the benchmark interest rate higher… With U.S. yields at these high levels, gold is facing a struggle to try and stay above the $1,900 level in the short term,” Tim Waterer, chief market analyst at KCM Trade, sid as quoted by Reuters.
🇪🇺 📉 European stocks down. European stock markets took a big hit on Thursday as traders absorbed fresh economic data from the U.S. The pan-European Stoxx 600 index closed with a significant drop of 2.5%. (CNBC)
Every sector and major stock exchange ended up in the negative zone. The travel and leisure sector experienced the biggest losses, plummeting by 4%, closely followed by retail stocks, which fell by 3.7%.
Meanwhile, stock markets in the Asia-Pacific region experienced sharp declines after the news from the Fed, and U.S. stocks also fell sharply on Thursday morning due to growing concerns about interest rates.
⛰️Rolling downhill. Eurozone business activity entered a contraction phase last month, meaning things were not going so well. This decline affected different sectors, especially the services industry, which had a widespread downturn. A survey found that HCOB's final Composite Purchasing Managers' Index (PMI) fell to 49.9 in June, down from May's 52.8. (Reuters)
"All major euro countries have again lost considerable momentum. The slowdown in business activity growth was accompanied by a weaker rise in new business, lower price increases, and a decline in business expectations," said Cyrus de la Rubia, chief economist at Hamburg Commercial Bank.
🥊 Meta officially launches its “Twitter killer” app. Over 30 million users have joined Meta Platforms Inc.'s latest app called Threads, which is designed to directly compete with Twitter, posing a significant challenge to Elon Musk's struggling social media platform. But there’s one major drawback: the Threads app isn’t available in Europe and nobody knows when (or if) it will be. (Bloomberg)
Threads allows users to share text, links, and engage with other users by replying to or sharing their messages. “There should be a public conversations app with 1 billion-plus people on it. Twitter has had the opportunity to do this but hasn’t nailed it. Hopefully we will,” Meta Chief Executive Officer Mark Zuckerberg said.
📸 Image of the week
🔨 "If your only tool is a hammer, every problem looks like a nail. This old saying still rings true as central banks keep ratcheting up the interest-rate pain. There's been minimal impact on wealthy households but a disproportionate effect on those who can least afford it.” (Bloomberg Opinion)
“A global recession looks unavoidable if interest rates keep being hiked. We've had warnings from the gilt crisis, the collapse of Credit Suisse Group AG and several US bank failures. Plenty of other rate-sensitive sectors are wobbling, including over-leveraged commercial property and utilities. But the real damage is being done in other pockets of the economy such as small- and medium-sized enterprises and home renters,” Bloomberg’s Marcus Ashworth writes.
What else is happening
🤝 Yellen meets with Chinese Premier Li Qiang. U.S. Treasury Secretary Janet Yellen has arrived in Beijing with the aim of finding common ground between the United States and China. During her time there, Yellen will have discussions with Chinese officials about the significance of handling their bilateral relationship. (CNBC)
“We should not allow any disagreement to lead to misunderstandings that unnecessarily worsen our bilateral economic and financial relationship,” Yellen said in her prepared remarks.
🇷🇺 🇺🇦 Russia and Ukraine stoke fears around Zaporizhzhia plant. The two countries have traded accusations, with each side claiming that the other is planning an attack on the Zaporizhzhia nuclear power station. This facility, which has six reactors and is the largest nuclear power plant in Europe, has long been a source of tension and mistrust between the two countries. (CNBC)
"Under cover of darkness overnight on 5th July, the Ukrainian military will try to attack the Zaporizhzhia station using long-range precision equipment and kamikaze attack drones," Russian news agencies quoted Renat Karchaa, an adviser to the head of Rosenergoatom, as telling Russian television. He offered no evidence in support of his allegation.
🪖Prigozhin’s fate remains unclear. Wagner boss Yevgeny Prigozhin is back in Russia and is with thousands of fighters, Belarus's Lukashenko says, dismissing speculation that President Vladimir Putin would have Prigozhin killed. (Reuters)
Lukashenko played a key role in facilitating an agreement to resolve the Wagner-led mutiny that occurred in Russia last month, posing the gravest challenge to Putin's 23-year-long rule. As part of the deal, Prigozhin was supposed to withdraw his group of mercenaries and relocate to Belarus, while Putin would drop the charges against him.
🕰️ Time is a slippery thing - scientists reinforced this idea on Monday through a study involving intense black holes known as quasars. They used these observations to showcase "time dilation" in the early universe, which means time moved much slower back then, only about one-fifth as fast as it does now. The observations date back to approximately 12.3 billion years ago, when the universe was around one-tenth of its current age. (Reuters)
In the study, scientists used quasars, which are extremely bright objects in the universe, as a sort of "clock" to measure time in the distant past. Quasars are supermassive black holes that are incredibly active and much bigger than our sun. They typically reside at the centers of galaxies.
See you next week!