Market Report: Burst of enthusiasm for global equities as G7 pledges are made

by | Jun 27, 2022

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:

‘’The burst of global enthusiasm for equities has put a spring in the step of the FTSE 100 at the start of the week. US indices surged on Friday, helping set a positive pace for Asian stocks as optimism lifts slightly that central banks may finally be getting a handle on inflation. That hope is offsetting continuing concerns that the rapid withdrawal of cheap money and an intensifying cost-of-living crisis could trigger recessions.

“Miners have started on the front foot, helped by the plans for a potential $600 billion global infrastructure boost, which was unveiled at the G7 summit. It’s hoped this scheme, seen as a counter to China’s Belt and Road Initiative, will set off a spurt of spending and demand for commodities around the world, triggered by the $200 billion pledged by the US. But there are already some concerns about the watering down of commitments amid escalating costs of some planned projects due to inflationary pressures.

“Concerns about inflation aren’t likely to go away any time soon given that the clamour for higher wages is getting louder from workers in sectors across the board. A summer of strikes has begun, severely disrupting services with knock-on effects for supply chains and the pandemic recovery. Industrial action on the British and French train networks is looming, and more flights are set to be disrupted due to walk outs of Ryanair cabin crew in Belgium, Spain and Portugal and British Airways staff at Heathrow.

“UK criminal barristers are going on strike claiming the justice system is in a state of cardiac arrest due to underinvestment and poor pay for junior lawyers, while UK teachers’ unions are also threatening walk outs this Autumn.

“The brief respite from higher oil prices was short-lived as Brent crude has headed back up above $113 dollars a barrel. The gain has lifted shares in energy giants BP and Shell in early trade. Russia’s escalation of its offensive in Ukraine by targeting Kyiv with strikes as the G7 summit begins, demonstrates just how entrenched this war has become.

“This has increased worries about crude supplies on world markets. Russia is no less hard lined in its stance even though the country is staring at debt default. Key payment deadlines are expiring but it’s not because Russia is without the cash, given that oil and gas revenues are still pouring in. Instead sanctions isolating the country from the global financial system are hindering the ability to make the interest payments.

“Despite the creep upwards in prices, oil is still on track for the first monthly loss in June since November. Worries in the background persist about a looming global downturn and falling demand for crude as a knock on effect of sharply tighter monetary policy, despite pledges to spend big on infrastructure.’’

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