Market update – June 2022

Article written in June 2022

💡 What drove the markets in June 2022? 💡

🎯 1. US markets: inflation and rate hike higher than expected: 📉

Last Friday, 12th June, the CPI data (Consumer Price Index), used as a reference to track the inflation, came out worse than expected.
CPI was believed to have peaked in March 2022 at 8.5%, with April’s reading at 8.3% and forecasts for June around 8.3% as well. However, eventually, the CPI came out at 8.6%, which is thus a new peak.
This was not a good news, as it showed that inflation was still out of control, and the markets, especially $SPX500 and $NSDQ100 , went spiralling down immediately, losing 3% on Friday, and another 3% on Monday.

Markets were initially anticipating a 0.5% rate hike by the Fed in June, but after Friday’s CPI data release, markets dived in anticipation of a higher rate hike.
When the rate hike came at 0.75% on Wednesday 15th June (the highest rate hike by the Fed since 1994), the markets initially reacted with relief – certainty about the hike & comfort with the Fed trying to act decisively against inflation.
US interest rates are now at 1.5%.
Eventually, the “exceptional” rare hike of 0.75% and the possible subsequent ones is threatening to throw the US economy into a long-lasting recession – maybe it’s the price to pay to reduce drastically the demand and finally tame inflation.

Thus, US markets are now pricing in the possibility of a recession, and thus going down continuously.
Both SPX500 and NSDQ100 are now in bear market, more than 20% down from their ATH.

🎯 2. European markets: 📉

The story is quite similar in Europe, where inflation is also at its highest point in decades. The ECB is being slightly less enthusiastic in rate hikes than the Fed for now, but the fears of tightening liquidity conditions is also making the markets go down.

The EUSTX50 is now also in bear market, more than 20% down from its ATH.

🎯 3. China market: 📈

Interestingly, China is in very different economic conditions than Europe and the US, because:
– Demand is very slow, preventing prices from spiking up, due to Covid lockdowns etc
– The central bank, People’s Bank of China, is actually considering to lower interest rates to stimulate the economy rather than increasing them. China’s interest rates stand now at 2.85% (vs 1.5% in the US).

As a result, Chinese equities are somehow spared by the turmoil affecting the Western markets, and are even recovering from the previous lows caused by the lockdowns.

🎯 4. Cryptos: 📉

Despite the hopes of many crypto supporters, overall the crypto market and BTC in particular have not proven yet to be “inflation hedges”.
Actually, it’s even quite the opposite: cryptos (led by $BTC ) remain closely correlated to the markets.

Furthermore, recent developments in the crypto world have been casting some doubts on the reliability of some actors and assets (Luna, Celsius etc).
The last two articles I enclose below provide more details on these two stories that have dramatically impacted the crypto world in the last weeks.

As a results, BTC is down 60% from its ATH, ETH is down more than 75% from it etc.

🎯 𝗪𝗵𝗮𝘁 𝘁𝗼 𝗲𝘅𝗽𝗲𝗰𝘁 𝗻𝗲𝘅𝘁? 🎯

Eventually the markets will recover – good news will come from China regarding Covid, and good news will come from Europe regarding the war in Ukraine.
This will help the US as well in their fight against inflation, as the US economy is heavily connected to the rest of the world.
It’s not possible to guess when this will happen, and markets could go much further down before rebounding.

However, you should feel much more comfortable investing at these levels rather than at the ATH we had before (ex: SPX500 at a discount of 3,700 now vs 4,800 at ATH, NSDQ100 at 11,200 vs 16,800 at ATH, BTC at 20k instead of 60k, ETH at 1k instead of 4.5k etc) 

I hope this helps you understand a bit more what happened, and enjoy these days – it’s a great time to invest.

Thank you and trade safe!

Nico