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Chapter 1: What is the focus of the week ahead for central banks?
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welcome to on point i'm mark lister investment director at craigs investment partners and i'll be talking about a range of topics including economics portfolio strategy investor education and anything else that's happening out there in financial markets g'day team hope you're all well let's take a look back at financial markets last week then let's turn our attention to what's coming up in the week ahead
First of all, my thoughts are with all of our Christchurch-based listeners. I know that was a tough night for you on Friday night against the Chiefs, so apologies for that. My team, the Warriors, are playing the Sharks tonight, so that will be behind us by the time you hear this. Hopefully we get the win.
Financial markets were also volatile, many of them very up and down over the course of last week, but most of them did finish higher. We've got hopes of a deal between Iran and the US that has boosted sentiment. Yes, we've been here before, haven't we? But hopefully there is some more substance to it this time. I'm sure we'll hear more about that in the coming days.
The S&P 500 index in the US was up 0.6%. The UK was up 1%. Europe was up 1.9%. Japan, the only one of the major markets to fall. The Topics Index was down 1.7% in Japan. Emerging market equities, they went sideways. So certainly more ups than downs. Closer to home, the Aussie market, the ASX 200 had a good week. It was up 2.1%. And the local NZX 50 also had a pretty strong week. It was up 1.8%.
Interest rates are mostly lower. US interest rates slipped back. The two-year Treasury yield was seven basis points lower. It's at 4.08%. The 10-year down slightly too, just below 4.5%. Here in New Zealand, our five-year swap rate was down seven basis points to about 3.76%.
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Chapter 2: How did financial markets perform last week?
That is the lowest we've seen since early March, so quite a big fall. Markets still expecting a rate hike from the Reserve Bank next month. Odds are sitting at about 80%, 85%. And I think 69 basis points of tightening is priced in over the balance of this year. So those numbers have come down a little. over the last week or two, but still pretty close to three rate hikes expected this year.
So that would put the OCR at 3% by Christmas. Oil prices off a little bit on the back of that talk of a deal between the US and Iran. US crude oil prices fell just over 6%. That sees them just below US$85. That's the lowest in about eight weeks, two months. Gold was down 2.5% for the week, and Bitcoin recovered slightly. It was up almost 3% last week. Still been a tough year for crypto investors.
Last week was also very notable because we had the highly anticipated debut of SpaceX. It debuted on Friday night. The share price at one point jumped 31%. above its $135 IPO price, it ended up settling at, where did it end? 161 or just below that level. So up about 19% from its IPO price. So that sees the company's market capitalization total value at US $2.2 trillion.
And that makes it the sixth highest value public company in the world. So pretty amazing, isn't it? Right, let's run through some of the releases that we saw over the week. And in the US, we had some more inflation figures. This was one of the highlights, the US Consumer Price Index. We saw the headline inflation rate increase from 3.8% in April to 4.2% in May.
That was in line with market expectations.
and it was the highest in a little more than three years core inflation that excludes food and energy that increased too it rose in an annual rate of 2.9 that was actually below forecasts people were expecting three percent but came in at 2.9 so a touch below expectations still the highest in seven months so we've still seen core inflation uh accelerating slightly
Unsurprisingly, a big part of that increase came from a big rise in energy prices. Food prices were a bit more subdued and shelter was also a bit more subdued. So core inflation isn't looking too bad in the US. It really is those energy and fuel costs that are driving things up. The other key development last week was the ECB, the European Central Bank, which restarted its hiking cycle.
It increased interest rates last week. It was sitting at 2% in terms of its policy rate. That's where it's been since June last year. Before that, the policy rate in Europe had got as high as 4%. That's where it got to in 2023.
2024 and then they brought it down from four down to two where it settled middle of last year so one increase now they're at 2.25 that's come on the back of inflation which is what everyone around the world is facing uh eurozone inflation is sitting at 3.2 that's where it got to in may that's been the highest in two and a half years and quite a jump from where it was before the war broke out in iran
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