A tough time for risk assets

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IN a week in which the world’s most powerful central bank, the Federal Reserve, hiked domestic interest rates by the largest single amount in nearly 30 years, it is perhaps unsurprising that risk assets saw another difficult period.

Stock markets were broadly weaker, the MSCI World index declining by 1.92%, bringing 2022’s total loss to date to nearly 23%. The one bright spot was China, where easing of the latest round of Covid restrictions and a boost in government stimulus measures helped the market to rise by more than 3% during the week, compounding a strong rise in the CSI 300 index of 13% since the end of April.

Ten-year bond yields widened further in GBP and EUR, with ten-year gilts now yielding 2.64%, their highest level in nearly eight years. LIBOR three-month cash rates also continued to rise, reflecting the market’s expectations that central banks would continue their policy of monetary tightening into the third quarter of the year.

Crude oil prices, perhaps beginning to reflect the market’s growing expectation that economic growth may begin to slow later this year as inflationary pressure impacts household budgets, fell by nearly 7% during the week, while precious metals continued to find support, with gold rising to $1,838, and silver to $21.75 per ounce respectively.

A wave of selling continued to impact the largest crypto currencies, Bitcoin being down to near the USD$20,000 level, while Ethereum briefly dipped below USD$1,00 for the first time since January 2021.

Smaller coins, however, began to recover from the broad market slump of recent weeks, Litecoin in particular showing a strong 20% gain.

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