Weekly Roundup 2022-06-17

Weekly Roundup 2022-06-17

Lunar Capital Weekly Roundup

Index / Fund / Rate Start of Year Last week This Week % change YTD
JSE ALSI 73 723  67 803 65 390 -11.30%
NASDAQ Composite 15 833 11 340 10 798 -31.80%
S&P 500 4 797 3 901 3 901 -23.38%
Prime Lending Rate 7.25% 8.25% 8.25% 13.79%
Lunar BCI WW Flexible Fund 165.68 138.08 131.69 -20.52%
USD/ZAR 15.96 15.88 16.06 0.63%
EUR/ZAR 17.95 16.73 16.89 -5.91%

Source: iress

Company and Market News

Last Wednesday, The US Federal Reserve (Fed) announced that it will increase its benchmark interest rate by 75 basis points.  This comes after the announcement that the yearly US consumer price index for May increased by 8.6%, compared to expectations that it would only increase by 8.1%. The benchmark funds rate range now sits at between 1.5% and 1.75%. This is still a long way from giving investors in US treasury bonds a real positive rate of return (ie. a return after inflation has been accounted for).

A 75-basis points increase has not been seen since 1994. Jerome Powell (the Fed chairman) said that they expect that the rate will increase by another 50 to 75 basis points in the July meeting. The decisions will be made after the inflation figures for June come out.

The Fed is effectively trying to tame inflation by decreasing demand. But they do not want to push the US economy into a recession. Some market analysts believe that the rate increases have been too little and too late, and that the risk of a recession in the USA next year is very high.

At the June meeting of the Federal Open Market Committee (the committee that makes decisions about the interest rates and US money supply), at least half of the members indicated that the Fed fund rate might need to rise to around 3.375% by the end of the year. This is about 1.5 percentage points higher than what they expected in March. The market, through the rate that it wishes to earn on US Treasury bonds has been predicting a rate of around 3.5% in the FED funds rate by the end of the year.

The long-term goal of the Fed is to get inflation to a 2% level while keeping the labour market strong.

 

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