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July was the best month since November 2020, with the S&P 500 up 9.1% and the Nasdaq Composite up around +12%. Hopes are growing that signs of a slowing economy may prompt the Federal Reserve to hold off on a major interest rate hike in the fall.
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Energy resources
Profits for major oil companies continue to rise. BP (formerly The British Petroleum Company) today announced a 2nd quarter profit of $8.5 billion, more than tripling from a year ago and the highest quarterly profit in 14 years. prices and rising demand have led to an increase in refining margins for the world’s largest energy companies.
The S&P 500’s energy sector is the only one with significant gains in 2022. It’s up 39% since January, with utilities the next closest sector up just 3% since 2022. The other nine sectors, which cover technology and consumer goods, financials and real estate, are all negative for the year.
US Stock Market
Many big American companies are doing well, having released their quarterly earnings reports so far. Some large companies, such as Meta, have reported disappointing results and the future is uncertain. Other tech giants, including Alphabet, Amazon, Apple and Microsoft posted results that, while hardly stellar, were enough to convince investors that their businesses are solid and promising.
Among S&P 500 companies that have reported results for the second quarter so far, corporate earnings came in just 3.1% above estimates, below the five-year average of 8.8%, according to FactSet Research. The lack of bad news on the earnings side partly explains why the S&P 500 has bounced back about 12% from its lows in June, and investors are hoping for a continuation of the rally in August after a strong July rally.
The price of money
Deutsche Bank emphasized that “July’s rise was driven by a combination of factors, including the possibility that the Federal Reserve will be slower to raise interest rates in the fall due to economic conditions and that inflationary factors may have peaked.”
So far, the US has raised interest rates by 2.25% in 2022, and this also affects us in Europe, considering both price and interest rate increases for the dollar. It is the most used currency in the world, as well as in the Forex* and loan market, and due to the above conditions, loans remain more expensive for market participants who have to repay loans in dollars. It is also worth keeping in mind when buying or selling shares in the US stock markets to see the real benefit of diversifying your investments in the stock markets of different currencies.
*Forex stands for currency market. Forex trading, in simple terms, is the trading of currencies of different countries against each other; for example, the US dollar against the euro
US Economy
Last week, the second-quarter estimate of US real gross domestic product (GDP) showed the economy shrank 0.9%, marking the second straight quarterly decline and meeting the unofficial definition of an economic recession. GDP allows central banks to judge whether the economy is contracting or expanding, whether it needs stimulus or restrictions, and whether there are threats such as recession or inflation.
ECB
The European Central Bank (ECB) will continue to raise interest rates until inflation returns to 2%. The ECB took the first steps to curb inflation by raising interest rates by 0.50% on July 21, ending an eight-year period of negative interest rates. This move ended the period of negative interest rates, which was aimed at supporting the development of the euro area and stimulating the economy. Therefore, we can expect an increase in the cost of credit for citizens and companies in Latvia.
Grain shipments from Ukraine resumed
The long-awaited price reduction is currently visible in raw materials such as grain prices. The decrease in the price of raw materials is essential for maintaining the purchasing power of consumers and companies, allowing to find a balance between demand and supply in the market.
The Sierra Leonean-flagged ship Razoni, carrying 26,000 tons of maize, left Odessa at 9:48 a.m. local time on August 1, becoming the first ship to leave the port since late February.
Another 16 grain ships are waiting to leave Odessa, but much will depend on whether the agreement remains in place and whether shipping companies and insurers risk sending ships into mined waters. Expecting a positive outcome, wheat futures contract prices on the Chicago Stock Exchange fell by about 13% in the last month. A bushel of wheat* is now trading for about $8, about double what it was five years ago.
* 1 US bushel = 35.2 liters
*Future contract – a standardized financial contract that stipulates that the buyer is obliged to buy an asset or the seller is obliged to sell an asset in the future at a predetermined date and price.
The foreign press review was prepared by Kristofers Ekis.
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