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Weekly Market Overview: The Possibility of a Recession Sharpens Investors’ Concerns

Jun 20, 2022
The main indices in the US ended last week on a negative territory. The aggressive policy of the central banks around the world put the market’s sentiment to the test. The concerns of the investors sharpen by the possibility of a recession amid the persistently high inflation and the fast increase of the main interest rates.
In addition, the weaker economic data and “bearish” sentiment of executives in the corporate world focused investors’ attention on the preliminary reports for the second quarter (Q2) in anticipation of weaker results. Last but not least the problem with China and its blocking still exists. The measures used in combating Covid-19 have a direct influence on the global supply chain.
Stocks of the developed international markets (MSCI EAFE) also closed the week on red territory. This is largely due to the European Central Bank (ECB) and its attempts to balance inflation and aids. ECB must fight at the same time the rising inflation by tightening its monetary policy with increasing the main interest rate, but at the same time it needs to be cautious about the state of the heavily indebted euro nations, for which the future higher interest rates will cause upwind. The developing markets are no exception in terms of the weekly performance. They also finished weak, but there seems to be light in the tunnel as Covid-19 improves in China. However, the situation remains delicate given the spread of the virus and the aggressive measures of China.
 
Bonds
Bloomberg Aggregate Bond Index and Bloomberg High Yield Index finished also on red last week. This is mostly due to the yield of the 10-year government US bonds. It increased sharply and exceeded 3.2%. The influence of the monetary policy of the Fed has its impact on the performance of the fixed income instruments, which has the worst start in the last 50 years.
 
Commodities
Crude oil and natural gas withdrew this week despite the lower resources around the world. Despite the decline, the fundamental indicators remain positive for the investors in the energy sector. Due to the increased demand during the summer season, the gas resources are currently on an 8-year low.
 
Three key events for the upcoming week
Jerome Powell must testify before Congress on Wednesday and Thursday and is expected to repeat the Fed’s obligation for restricting the inflation, which is the highest in 40 years.
The ECB President Christine Lagarde will testify before the European Parliament in Brussels today and will likely be carefully questioned about the progress on the bank’s new instrument for the fight with the crisis after it was announced last week. The ECB is developing plans for new scheme for a purchase, aimed at combating “fragmentation” or the increasing gap between the expenses of loans which are paid by Germany and more indebted countries from the periphery of the Eurozone like Italy, Spain, and Greece.
The economic calendar is light next week with the main focus being on the update of the state of the housing sector. The data from Tuesday on sales of existing houses in the US is expected to show a slowdown in May as interest rates on mortgages continue to increase. The US must publish data on sales of new houses on Friday, with markets looking for a rebound after the decline of 16.6% in May.
 
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Disclaimer:
This information is marketing material and does not present investment consultation, advice, investment research, or investment recommendation. The information is valid as of the issue date of the marketing material and may alter in the future. The value of the units in the collective investment schemes changes over time and it could be higher or lower from the value at the time of the investment. No profits are guaranteed and risk exists for the investors to not receive the full amount of their investments. Investments are not guaranteed by a guarantee fund which is created by the country or another form of guarantee. Information on the performance of the financial instruments in the past is not a reliable indicator for future performance. Therefore, it is recommended for investors to acquaint themselves with the Prospectus and the Document with key information for investors before making a final investment decision. You can find these documents in Bulgarian on the website of Compass Invest - www.compass-invest.eu, and you can request and get a free paper copy at the office of the management company at: Sofia, 19 George Washington Str, floor 2, during every business day from 9 am to 5 pm. Future results are subject to taxation, which depends on the personal situation of each investor and may change in the future. A summary of the rights of the investors is available at the following hyperlink in Bulgarian: here. The mutual funds, which are managed by Compass Invest, are actively managed without following an index. We would like to inform you that Management Company Compass Invest can make a decision to terminate the offering of funds on the territory of the Republic of Bulgaria. The investment in units of mutual funds, in addition to benefits, carries certain risks like: liquid, operational, interest, currency, and political risk, as well as macroeconomical risk, currency risk, concentration risk, etc. The full information about risks can be found in the Prospectus of the respective fund.
Risks:
Despite benefits, the investment in shares of mutual funds brings certain risks like:
1) Market risk with the following components: a) interest risk related to a decrease of the value of the investment due to a change of the interest rates levels b) currency risk related to a decrease of the value of the investment, denominated in a currency which is different from BGN and EUR c) price risk related to a decrease of the value of the investment in the case of unfavorable changes of the market’s prices;
2) Credit risk – related to a decrease of the value of the position in the case of unexpected events with a credit nature which are related to the issuers of financial instruments, the counter side of exchange and OTC transactions, as well as countries, in which they operate;
3) Operational risk – from errors or flaws in the system of the organization
4) Liquidity risk – in case of forced sales of assets under unfavorable market conditions;
5) Concentration risk – in case of incorrect diversification of exposures to groups of related clients, from the same economic branch, geographic area, etc.
6) Position risk which is related to the change of price of a certain instrument in result of factors related to the issuer or in case of a derivative instrument – related to the issuer of the base instrument;
 
Additional information for the risks can be found in the Prospectus of the respective fund, which is available here: www.compass-invest.eu