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D-PIMS Weekly Market Update - Week of 13th to 19th June 2022

Today’s Monday update:

Over the course of last week, market moving headlines were mostly related to economic matters and developments in Ukraine:

• European Central Bank's policymakers were holding a rare, unscheduled meeting on Wednesday to discuss a jump in borrowing costs for some euro zone nations, fanning speculation the bank may be gearing to act to calm markets. Yields of bonds issued by Italy and other debt-laden nations have risen sharply since the ECB flagged a series of rate hikes in the last week and wound down a debt-buying programme in the face of soaring inflation. Facing the threat of a repeat of the debt crisis that almost brought down the single currency a decade ago, ECB's policy-setting Governing Council was meeting to discuss how to respond to recent market turmoil.

The European Commission launched two new legal proceedings against Britain on Wednesday after London published plans to override some post-Brexit rules governing Northern Irish trade and resumed another challenge it had previously paused. The proceedings could result in the European Court of Justice (ECJ) imposing fines, although these would likely be more than a year away.

The Federal Reserve on Wednesday approved its largest interest rate increase in more than a quarter of a century to stem a surge in inflation that U.S. central bank officials acknowledged may be eroding public trust in their power and being driven by events seen increasingly out of their hands. The widely expected move raised the target federal funds rate by three-quarters of a percentage point to a range of between 1.5% and 1.75%, still comparatively low by historic standards.

Russia on Wednesday said it has offered "safe passage" for Ukraine grain shipments from Black Sea ports but is not responsible for establishing the corridors and Turkey suggested that ships could be guided around sea mines. Ukrainian grain shipments have stalled since Russia's invasion and ports blockade, stoking global prices for grains, cooking oils, fuel and fertilizer. The United Nations is trying to broker a deal to resume Ukraine exports and Russian food and fertilizer exports, which Moscow says are harmed by sanctions.

• On Thursday, Ukraine said it urgently needed more weapons to fend off Russian advances in the south and the east, an appeal aimed at the West as the leaders of Germany, France and Italy headed to Kyiv by night train for a visit on Thursday. Russia has focused most of its firepower on the eastern city of Sievierodonetsk while also trying to consolidate control over southern territory encompassing the strategic city of Kherson, north of the Black Sea. Major-General Dmytro Marchenko, who leads Ukraine's forces in Mykolaiv, said his troops could achieve victory over Russia if they are given the right weapons.

U.S. housing finance giant Freddie Mac said on Thursday the average contract rate on a 30-year fixed-rate mortgage rose by more than half a percentage point to 5.78%, the greatest one-week jump in 35 years. Rates on the most popular type of U.S. home loan surged after the Federal Reserve announced it was raising interest rates by 75 basis points in an attempt to slow the economy and quell inflation, which is at 40-year-highs. Mortgage rates have risen sharply since this time last year when the average rate on a 30-year fixed-rate mortgage was 2.93%.

On Thursday, the Bank of England’s Monetary Policy Committee delivered a fifth consecutive increase in the base rate – taking it to 1.25%, a level not seen since 2009. Six members of the MPC backed the 0.25-percentage-point increase, while three members had pushed for 0.5 basis points (bps).

• On Friday, the World Trade Organization's 164 members approved a series of trade agreements early on Friday that included commitments on fish and pledges on health and food security after more than five gruelling days of negotiations. The deals were ground out over five days of bargaining at a conference of more than 100 trade ministers, that was seen as a test of the ability of nations to strike multilateral trade deals amid geopolitical tensions heightened by the Ukraine war. The accord to curb fishing subsidies is only the second multilateral agreement setting new global trading rules struck in the WTO's 27-year history and is far more ambitious than the first, which was designed to cut red tape.

The European Union's executive Commission gave its blessing on Friday to membership candidate status for Ukraine and two other former Soviet states, an historic eastward shift in Europe's outlook brought about by Russia's invasion. Ukraine applied to join the EU just four days after Russian troops poured across its border in February. Four days later, so did Moldova and Georgia - two other states contending with separatist regions occupied by Russian troops. Ukraine, Moldova and Georgia will still face a lengthy process to achieve the standards required for membership, and there are other candidates in the waiting room.

Production at U.S. factories unexpectedly fell in May, the latest sign of cooling economic activity as the Federal Reserve aggressively tightens monetary policy to tame inflation. The first decline in manufacturing output since January reported by the Fed on Friday followed news this week of a drop in retail sales last month as well as steep declines in homebuilding and permits. The weakness in production also reflects a shift in spending from goods to services.

• Over the week, the main global stock markets were well down, with China performing the best. Ongoing inflation and growth concerns were still weighing on markets. Over the week, all the D-PIMS Portfolios were inevitable down. The Portfolios were particularly helped by their China allocations and also helped by some Absolute Return allocations.

 

The value of investments and the income from them can fall as well as rise and you may not get back the original amount you invested.

Past Performance is no guarantee of, or guide to future returns.

The comments made above represent our interpretation of events and market views and are in no way a guarantee of future investment performance.

 

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