With the Debt Ceiling Rumbling On and a German Recession Confirmed, It’s Not Been the Best Week for the Markets

UK & Europe: Indexes Are Dropping

Most major European markets were down for the week, mostly owing to the ongoing uncertainty surrounding the US debt ceiling agreements. 

The wider Euro Stoxx 600, for example, index fell by 1.59% for the week, whilst the Danish OMX Copenhagen dropped 2.81% for the week. 

Some local uncertainty in the form of a German recession was also wobbling markets. The announcement of the recession came last week as Germany’s GDP figures were released, revealing negative growth of 0.3% for the last quarter. 

As it was negative 0.5% the previous quarter, this is two quarters of negative growth, officially making it a recession. 

But it’s not all bad news! UK inflation fell for the month of April, from 10.1% to 8.7%. The IMF also revised their growth expectations for the UK last week, and with the FTSE 100 surprisingly buoyant at 4.4% up for the year, there’s more hope for some markets than we might think. 

Americas: Debt Ceiling Continued

US markets ended the week with very mixed results as they awaited news of the US debt ceiling agreement. 

President Joe Biden had cast doubt on their ability to reach an agreement mid week, which caused not just US markets, but also global markets, to worry. 

Over the public holiday weekend, it was announced that the beginnings of a deal had been reached, which will likely see a rise in the debt ceiling until January 2025. 

This will likely lead to a bumper start to the week on the markets when they open as some of the uncertainty dissipates. 

Asia & Australasia: China’s Slowing Growth

Chinese markets fell by 2.4% for the week, owing to ongoing US debt ceiling issues as well as the release of some worrying local figures. 

Unemployment rates for those aged 16 to 25 in China are above the 20% mark, with many of those out of work still being university graduates. 

The effects of ongoing zero Covid-19 measures –  on both small and medium businesses –  seems to be affecting their ability to hire young workers, leaving a crucial sector of the workforce out of the job market. 

China also announced a ban on buying chips from the US based company Micron Technologies, with security being one of the main factors. 

The ban on US chips is part of a tit-for-tat political spat between the two countries, which could continue to affect semiconductor, chip and tech companies in both locations into the future. 

Stock World: Non-Cyclical Supermarket Stocks

Supermarkets, and other consumer goods, are traditionally non-cyclical, yet UK-based supermarket chain Ocado is proving to be the exception.

When a stock is non-cyclical, their prices are largely unaffected by wider market cycles and remain relatively stable. When stocks are cyclical, on the other hand, this means they generally go up and down as the wider markets do. 

Staple goods, many of which are supermarket products, typically fall within the non-cyclical category. But that being said, Ocado saw a huge boom over the pandemic, as their online delivery service really took off. 

However, as the world has returned to the shops, Ocado has struggled to keep up the impressive growth. 

In turn, their share price is down 35% for the year, with their place on the FTSE 100 likely to be lost if they continue the downward trajectory. 

As a more high end supermarket, it could well be that the high inflationary environment has driven consumers away. 

So whilst there are key categories to be aware of, Ocado is proof that there are always exceptions!