Equities rally – but is it a bear-market bounce?

Last Week in the City provides a round-up of market movements and the global investing outlook. This covers the week to 22 July 2022.

| 9 min read

The European Central Bank (ECB) ended its experiment with negative interest rates – raising the cost of borrowing for the first time in more than a decade, to zero.

The ECB appears to have been slow to act on inflation, lagging other major central banks in raising rates. However, the central bank faces numerous serious issues that others do not. These include a winter gas issue as Vladimir Putin threatens to weaponise European supplies in response to sanctions relating to its invasion of Ukraine, an industrial crisis in Germany as the car industry undergoes a period of rapid change – and mounting political opposition to the EU project itself in some peripheral EU states.

Hopes that food exports could restart from Black Sea ports mounted at the end of the week after Turkey said a deal between Moscow and Kyiv was about to be signed. Covid-19 also remained a problem in China.

In the UK, the campaign for the next Tory leader and Prime Minister was narrowed down to the final two who will face a vote of Conservative Party members. The two have differing tax policies. Liz Truss proposes immediate tax cuts, but Rishi Sunak said he won’t cut taxes until 2023.

Nevertheless, the market gained this week, boosted by reassuring corporate earnings in the US. The technology sector was also given a lift after the US Senate pushed forward a $50bn bill to boost microchip manufacturing in the country. A debate is currently taking place about whether recent gains mean equity markets have bottomed – or the bounce is, in reality, a bear market rally.

Over the week, the blue-chip FTSE 100 index was up 1.9% by mid-session on Friday, with the more UK-focused FTSE 250 up 5.1%.

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Ukraine conflict

Russia and Ukraine are expected to sign a deal this weekend to reopen Ukraine's Black Sea ports for grain exports, according to the Turkish government. Ukraine and Russia, both among the world's biggest exporters of food, did not immediately confirm Thursday's announcement by the office of the Turkish presidency. But in a late-night video address, Ukrainian President Volodymyr Zelenskyy hinted his country's Black Sea ports could soon be reopened.

Russia has resumed pumping gas to Europe through the Nord Stream 1 pipeline after a maintenance shutdown, but at a reduced flow rate. There are concerns Moscow may use its energy exports to push back against Western pressure over its invasion of Ukraine. European natural gas futures dropped in the wake of flows resuming, but supply concerns remain.

Russia supplied Europe with 40% of its natural gas last year. On Wednesday, the European Commission urged countries to cut gas use by 15% over the next seven months in case Russia switched off Europe's supply. "Russia is blackmailing us. Russia is using energy as a weapon," EU Commission President Ursula von der Leyen said, describing a full cut-off of Russian gas flows as "a likely scenario" for which "Europe needs to be ready".


Beijing’s response to the Covid-19 pandemic continues to hit the Chinese economy. After recent data showed the Chinese economy contracted 2.6% year-on-year in the second quarter, analysts at Japanese bank Nomura pointed out that many restrictions remained in place. Based on its own survey, Nomura said that 41 cities are currently implementing full or partial lockdowns in China – or district-based control measures, which involve stringent measures restricting the mobility of residents. These 41 cities make up 18.7% of China's population and 22.8% of China's GDP.


UK inflation hit yet another new 40-year high in June as food and energy prices continue to drive a “cost-of-living” crisis. The consumer price index rose 9.4% annually, slightly above consensus expectations and up from 9.1% in May. This represented a 0.8% monthly increase in consumer prices, exceeding the previous month’s 0.7% rise, but far short of the 2.5% monthly increase recorded in April. Rising borrowing costs to deal with inflation also resulted in UK government debt hitting its highest level on record in June. The Bank of England could raise rates by as much as 0.5% at its next rates meeting, governor Andrew Bailey said in a speech in the City on Tuesday. However, Mr Bailey said such a move was "not locked in".

The collapse of the Italian government has created another headache for the central bank.

The European Central Bank (ECB) raised interest rates for the first time since 2011 to tackle Eurozone inflation which increased to 8.6% last month. The ECB raised its base rate by 0.5 percentage points, after indicating a smaller 0.25-point rise in June. The ECB’s president, Christine Lagarde, said: “We expect inflation to remain undesirably high for some time, owing to continued pressures from energy and food prices, and pipeline pressures in the pricing chain.” The collapse of the Italian government has also created another headache for the central bank.

A collapse in consumer confidence is exactly what central banks want. As people worry about the ‘cost-of-living’ crisis they are likely to become more cautious – and this frugality will help ease price pressures.


Tesla, which controversially made a major investment in Bitcoin last year, has now sold most of its holding. Elon Musk’s electric car group has disposed of 75% of its Bitcoin, which was worth about $2bn at the end of 2021. The value of the cryptocurrency has plunged by more than half this year. Tesla said it bought traditional currency with the proceeds of its Bitcoin sales. Nevertheless, Tesla’s company quarterly earnings beat estimates and management confirmed its target of increasing vehicle deliveries by 50% annually on average in the next few years.


US President Joe Biden says he expects to speak to Chinese leader Xi Jinping “within the next 10 days.” The two leaders last spoke in March, so it will be a rare chance for the two men to talk directly. President Biden has been expected to announce his decision on whether to scrap some of former President Donald Trump’s tariffs for some time, in a bid to help cool inflation.

China’s envoy to the US said the Biden administration is undermining the “One China” policy through its support of Taiwan and is exacerbating tensions with its human rights claims over Beijing’s treatment of Hong Kong and Xinjiang.

HSBC has set up a Chinese Communist Party (CCP) cadre in its China investment bank. The bank has become the first outside China to install a CCP committee, according to the Financial Times. Chinese law enforces domestic finance firms to have party officials in positions of authority. The committees typically act as a workers’ union.

The rapid rise in inflation will have political consequences and market impact. It has already led to a reset of several aspects of US policy, including climate change and its position in the Middle East.


News that Apple had become the latest major technology company to rein in hiring and spending plans, added to concerns about the economic showdown. The iPhone maker is looking to limit expenditures and job growth at some of its divisions, Bloomberg reported, though Apple has not adopted a companywide policy. Apple joins tech peers, including Amazon, Alphabet’s Google and Microsoft to reduce plans for new staff hires.

Shares in US-listed Netflix rallied after its second-quarter subscriber loss was less than half of what Wall Street had pencilled in, with a net 970,000 cancelling the service. A new season of its Stranger Things series was cited as a reason that people continued to subscribe. Despite concerns about increased competition and a potential recession, Netflix management remained confident and upbeat about its prospects.

Twitter scored an early win against Elon Musk in its fight to make him complete his $44bn acquisition of the social-media group. A judge in Delaware denied Mr Musk’s bid to delay a trial, which has now been fast-tracked with an October trial date. The judge accepted Twitter’s argument that a delay would cause severe damage to the business.

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Equities rally – but is it a bear-market bounce?

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