July 11, 2023

Second Quarter Highlights

Financial Markets

  • Global equity markets were weak much of the quarter due to fears that tighter monetary policy will lead to recession and due to U.S. debt ceiling debate uncertainty. However, resilient labor markets and better than expected earnings, particularly for artificial intelligence stocks, boosted equity markets later in the quarter.
  • Worries that the U.S. could default on its debt because of the debt ceiling debate pushed bond yields lower but yields rebounded after resolution of that issue and the Fed talked about more rate hikes to come.
  • Oil and industrial metals prices declined on worries of falling demand as global economic growth slows, particularly in China. Natural gas and livestock prices rose sharply on tight inventories.

Overview of the Economy

  • Earnings reports for the first quarter were solid with a majority of companies beating analyst forecasts but many warned about rising costs and economic headwinds.
  • Even though the number of new unemployment claims has ticked up modestly and the number of job openings is down slightly, theS. labor market remains tight with 1.6 job openings for every unemployed person. Also, wage growth remains strong, increasing 5.7% from the prior year in the latest report.
  • The consumer price index (CPI) in several countries continued to decline but remains above central bank targets. Producer prices have come down even more.
  • Surveys showed weak manufacturing activity around the world but services activity is still in expansion.

Notable Events

  • The Federal Reserve Open Market Committee (Fed) raised its policy rate in May and its forecast points to two more hikes by year-end. Several other central banks also raised rates.