GLOBAL CAPITAL MARKETS OVERVIEW:  

Wall Street closed higher on the first trading day of the third quarter as stocks rebounded from earlier losses in thin volumes ahead of the holiday-extended weekend, with utilities, consumer services, and retailers leading gains. The Dow rose 322 points, the S&P 500 gained 1.1%, and the Nasdaq gained 0.9%. Still, all three major indexes posted weekly losses, with the Nasdaq underperforming at 4.1%, the S&P down 2.2%, and the Dow down 1.1%. The survey of manufacturers showed activity levels remained near two-year lows in June, adding to a series of weak data earlier in the week of poor consumer morale and worse-than-expected GDP data. Among individual stocks, chipmakers hit rock bottom after Micron posted a gloomy outlook, and retailer Kohl's tumbled 19.7% after delivering disappointing guidance. Last session, the Dow and S&P 500 had their worst first-half performances since 1962 and 1970, respectively, while the Nasdaq had its worst half-year performance. Europe's major stock indexes ended flat on Friday, with Frankfurt's DAX up 0.1 percent but still near levels not seen since November 2020 and the pan-European Stoxx 600 flat after its most significant first-half drop since the previous session in 2008. Fresh economic data added to concerns about stagflation as the European Central Bank plans to start a tightening cycle at its July meeting after 11 years of ultra-easy monetary policy. Eurozone inflation surged to a new record 8.6% in June, showing no signs of peaking. Purchasing managers' index (PMI) data confirmed that manufacturing activity in Europe's major economies slowed to the highest level since 2020. Meanwhile, the ECB began buying bonds from Italy, Spain, Portugal, and Greece, with some of the proceeds coming from maturing German, French and Dutch bonds to limit widening yield spreads, Reuters reported. The DAX fell 2.3% on the week, its fifth straight weekly loss, and the Stoxx 600 lost 1.5%. The CAC 40 gained 0.14% for the week to end the week at 5,931, snapping two sessions of losses as traders took advantage of stock valuations on the first day of the quarter and shrugged off recession fears spurred by aggressive monetary tightening. Auto, defense, and technology stocks led gains, while bank stocks retreated on interest rate fears. Airbus jumped nearly 3 percent, topping the index after receiving orders for 292 planes from China's aviation group, while Renault rose 2.37 percent. Elsewhere, Sodexo shares rose more than 3.7% after the food service group reported better-than-expected quarterly revenue, supported by higher prices and a post-pandemic recovery. In contrast, STMicroelectronics fell 3 percent, the most on an index of U.S. peer Micron Technology's disappointing forecast for the quarter. For the week, the CAC 40 fell 2.34% as concerns over higher interest rates shifted investors from riskier equity assets to the bond market. The FTSE MIB index edged to 21,350 on Friday, still near a 17-month low hit in the previous session, as investors reassessed recession fears amid a flurry of new economic data. Eurozone inflation rose to a record 8.6%, while domestic data rose to a 36-year high of 8%, fueling speculation that the ECB could accelerate tightening in the third quarter. Meanwhile, domestic and eurozone manufacturing PMI data showed a sharp contraction in new orders, reflecting lower demand and adding to fears of an economic slowdown as borrowing costs rise. Utilities were the major gainers in the session, as investors priced in a further 8 billion euros worth of new energy aid from the government to offset a surge in utility prices from Russia's gas cuts. On the other hand, technology and consumer goods stocks closed lower. The FTSE 100 closed essentially flat at 7,167 at the end of Friday's turmoil, down 0.6% for the week, weighed down by energy and mining stocks amid stagflation concerns. In addition, weaker-than-expected manufacturing growth in June pushed investors further away from risk-sensitive assets. A PMI survey showed new orders fell for the first time since January last year. In addition, data from the Bank of England showed consumers were more cautious about lending as the central bank raised interest rates to combat soaring inflation. Among individual stocks, Jupiter Fund Management and Abrdn fell 3.5% and 3.1%, respectively, after Citi analysts downgraded both stocks to sell. The MOEX-Russia index closed at 2,207 on Friday, still at around two-month lows after falling 7.3% yesterday, as investors continued to assess Russia after Gazprom forwent record-earning dividend payments and the health of the business environment. Shares in the state-backed gas giant fell 7%, extending yesterday's 30% decline. Shortly before the close, Nord Stream AG, a subsidiary of Gazprom, announced that flow through the Nord Stream pipeline would stop for a week and a half due to repairs. The pipeline has been running at 40% capacity, prompting Western leaders to accuse Russia of weaponizing energy supplies. On the other hand, the oil industry rebounded sharply from yesterday's losses. Confidence in the sector remains strong compared to natural gas, as exports to Asia offset demand shunned by European buyers. Rosneft rose 3.5% and Lukoil rose 1%. On Friday, the Shanghai Composite Index fell 0.32% to close at 3388 points, while the Shenzhen Composite Index fell 0.28% to close at 12860 points, giving back some gains from the previous trading day. Survey responses to positive factory activity data. The Caixin China Manufacturing PMI stood at 51.7 in June 2022, returning to growth after three months of contraction. Meanwhile, investors remained cautious amid growing concerns that aggressive monetary tightening by major central banks could tip the global economy into recession. Weighted growth stocks fell, including BYD Corp (-1.3%), Hyundai Abe (-2.1%), and Lange Green Energy (-2.6%). Meanwhile, manufacturing and industrial stocks rose, with Sany Heavy Industry (4.1%), Wuxi Shangji (5.8%), and Suzhou TA&A (10.4%) gaining strongly. The Nikkei 225 lost 1.73% to close at 25,936. In comparison, the broader Topix index fell 1.38% to close at 1,845 on Friday, extending losses from the previous session as a string of disappointing economic data from Japan weighed on market sentiment. Japan's big manufacturers' confidence index fell for the second quarter in the April-June period. Japanese stocks also tracked overnight losses on Wall Street amid growing fears that aggressive monetary tightening by major central banks could tip the global economy into recession. Technology stocks led the declines, with SoftBank Group (-2%), Tokyo Electron (-3.7%), Recruit Holdings (-2.9%), Renesas Electronics (-3.1%) and Sumco Corporation (-3.6%) down sharply. Other index heavyweights also fell, including Toyota Motor (down 1.6%), Fast Retailing (down 4%), and Mitsubishi (down 5.4%). In New Zealand, on the first trading day of the new quarter, the NZX 50 fell 115.54 points, or 1.06%, to settle at a near two-week low of 10,753.16, marking its third straight session of losses and a weekly slump of 2.2%. All three major U.S. indexes reported sharp monthly and quarterly declines on Thursday. In the year's first half, the Dow and the S&P 500 had their worst performances since 1962 and 1970, amid fears of a global recession, persistently high inflation, and the threat of a tightening cycle. News that New Zealand business sentiment fell to a 26-month low in June continued to push investors away from riskier assets. RUA Bioscience fell 7.6%, while Chatham Rock Phosphate fell 5.4%. Other top losers included Fisher & Paykel Healthcare (down 2.1%) and Meridian Energy (down 1.6%). In contrast, travel-related stocks such as Air New Zealand and Auckland Airport rose as China eased restrictions on international tourists and the New Zealand border reopened. Australia S&P/ASX 200 index fell 0.43% to settle at 6540 on Friday, its third straight session of losses, as resource-intensive stocks were weighed down by growing concerns that aggressive monetary tightening by major central banks could derail the global economy into recession. Investors are also gearing up for next week's Reserve Bank of Australia policy meeting, which is expected to raise interest rates by another half a percentage point. Energy stocks led losses as oil prices weakened, with Woodside Energy (down 4.4%), Santos Ltd (down 2.8%), and Ampol Ltd (down 1.2%) falling sharply. Heavy mining and gold stocks also fell, including BHP Billiton (down 2.9%), Rio Tinto (down 2.3%), Fortescue Metals (down 3%), and Newcrest Mining (down 3%) and Northern Star Resources (down 0.4%). Meanwhile, financial and consumer stocks bucked the trend, and tech stocks were mixed on Friday.

REVIEWING ECONOMIC DATA: 

Looking at the last economic data:

- US: Wall Street had a lackluster first day of trading in the third quarter. New financial data added concerns that the economy can't afford a hike in the Federal Reserve's inflation target. The survey of manufacturers showed activity levels in June at two-year low, missing market expectations, adding to a series of weak data earlier in the week of poor consumer morale and weaker-than-expected GDP. On the corporate front, shares of retailer Kohl's tumbled about 20% after releasing disappointing guidance. Last session, the Dow and S&P 500 had their worst performances since 1962 and 1970, respectively, while the Nasdaq had its worst half-year performance. 

- US: The ISM Manufacturing PMI fell to 53 in June 2022 from 56.1 in May, indicating that factory activity grew at the slowest pace since June 2020 and below the consensus forecast of 54.9. New orders contracted for the first time in two years (49.2 to 55.1), suggesting rising interest rates are hurting demand. In addition, employment fell further (47.3 to 49.6), even as companies progressed in addressing short-term labor shortages at all levels of the supply chain. Meanwhile, supplier deliveries slowed (57.3 vs. 65.7), while production (54.9 vs. 54.2) and inventories (56 vs. 55.9) grew slightly faster, and price pressure eased (78.5 vs. 82.2). Meanwhile, business sentiment remains optimistic about demand, but companies cite supply chain and pricing issues as their biggest concerns.

- US: In May 2022, U.S. construction spending fell 0.1% from the previous month to a seasonally adjusted annual rate of $1.78 trillion, compared with a 0.8% rise in April and a 0.4% rise expected by the market. Public construction spending fell 0.8% from the previous month, followed by lower spending on residential construction (-0.7%) and non-residential building (-0.8%). Meanwhile, the private structure was little changed, as higher construction spending in residential (0.2%) and manufacturing (1.2%) more than offset lower construction spending on roads (2.3%) and healthcare (1.8%).

- US: The S&P Global U.S. Manufacturing Purchasing Managers’ Index was revised to 52.7 in June 2022 from an initial 52.4 but still indicated that factory activity was growing at the slowest pace since July 2020. New orders fell due to inflationary pressures, waning customer confidence in the outlook, and supply chain disruptions. As a result, firms use their current holdings of inputs and finished goods to supplement production, input purchases stall, and supply chain delays ease. The decline in new orders and continued employment growth have made clearing the backlog more successful, which has slowed significantly. On the price front, input price inflation was the lowest in three months, and output cost inflation also moderated. Meanwhile, businesses renewed their inflation concerns as their confidence in their outlook for the year ahead fell to the lowest level since October 2020.

- FR: From January to May 2022, the French government budget deficit fell to 82.3 billion euros from 118.8 billion euros a year earlier. Government spending fell 6.3 percent to 198.5 billion euros, while revenue rose 22.2 percent to 136 billion euros. Meanwhile, the Treasury Special Account, which tracks inflow and outflow balances of targeted revenues and expenditures, such as those from local governments, posted a deficit of 19.4 billion euros, down from 17.8 billion euros a year earlier

- UK: Net borrowing on UK personal mortgage debt rose to £7.4bn in May from an upwardly revised £4.2bn in April, above market estimates of £4.15bn. This is the highest level since September last year and above the pre-pandemic average of £4.3bn in the 12 months to February 2020. Total loans rose to £28.4 billion in May from £26.7 billion in April, while total repayments rose slightly from £21.6 billion in April to £21.8 billion in May.

- IT: According to preliminary estimates, annual inflation in Italy could accelerate to 8% in June 2022, the highest level since January 1986, beating market forecasts for a 7.4% increase, compared with last month's growth rate was 6.8%. The cost of energy commodities rose faster (48.7% vs. 42.6% in May), driven by non-regulated entities (39.9% vs. 32.9%), while regulated energy inflation remained unchanged (64.3%). Prices were also higher for processed foods (8.2 percent versus 6.6 percent) and unprocessed foods (9.6 percent versus 7.9 percent), as well as recreational and cultural services (5 percent versus 4.4 percent). As a result, annual core inflation, excluding energy and unprocessed food, rose to 3.8% from 3.2% the previous month. On a monthly basis, consumer prices were likely to increase 1.2%, well above consensus expectations of 0.6% and accelerating from 0.8% in May.

- EU: Preliminary estimates put annual inflation in the eurozone at a record 8.6% in June 2022, up from 8.1% in May. The figures beat market expectations of 8.4%, adding to the case for the European Central Bank to raise interest rates for the first time in 11 years in July. Energy prices continued to rise (41.9% vs. 39.1% in May); food, alcohol and tobacco (8.9% vs. 7.5%); non-energy manufactured goods (4.3% vs. 4.2%), but services declined slightly (3.4% vs. 3.5%). Excluding energy, inflation also rose to 5% from 4.6%, but the core index, which excludes the cost of energy, food, alcohol, and tobacco, fell from 3.8% to 3.7%. Compared with the previous month, consumer prices rose 0.8%, unchanged from May.

- GB: The S&P Global/CIPS UK Manufacturing PMI fell to a two-year low of 52.8 in June 2022 from 54.6 in May. The figure was revised down from an initial estimate of 53.4. As a result, production growth reached a near standstill, and new orders were contracted for the first time in 17 months. Across industries, the output of consumer goods producers fell markedly, while the investment goods sector again saw robust growth. At the same time, the increase in employment was associated with increased output, staff shortages, and a reduction in the backlog. In addition, inflationary pressures remain high due to scarcity of raw materials, tight supply chains, and rising prices for commodities, electronics, energy, oil, paper, plastics, and wood. The higher costs were partly passed on to customers through higher sales prices. Finally, business optimism fell to its lowest level since May 2020.

That's slightly below the pre-pandemic average of 66,700 for the 12 months through February 2020. Re-mortgage only involves re-mortgage with other lenders. That's still below the pre-pandemic average of 49,500.

- SW: Sweden's Swedbank Manufacturing PMI fell to 53.7 in June 2022 from 55.2 the previous month. The latest figures suggest that the sector's growth was the weakest since July 2020 as supply chains continued to be disrupted due to the war in Ukraine. The most significant negative contribution came from delivery time (63.9 vs. 69.1), followed by employment (53.9 vs. 56.7) and new orders (52.1 vs. 53.4). Meanwhile, production (54.9 vs. 53.7) and purchased inventory (60.0 vs. 62.7) contributed positively to the index. However, the measure of output expectations fell to 62.2 in June from 66.5 in May.

- RU: The S&P Global Russia Manufacturing Purchasing Managers' Index edged to 50.9 in June 2022 from 50.8 in May. The data showed factory activity expanded for a second month as new orders returned to growth, driven by rising domestic demand and new project agreements. At the same time, production continued to decline due to a sharp drop in exports and shortages of raw materials. Employment rose for the first time in five months as companies ramped up hiring. On the price front, input price inflation fell to its lowest level since February 2020, while output prices fell for the first time since March 2017. Finally, sentiment rose to a four-month high in hopes of increased customer demand and stable economic conditions.

- SK: The S&P Global Korea Manufacturing PMI fell to a three-month low of 51.3 in June 2022 from 51.8 in April but marked the 21st consecutive month of growth. Output contracted at the fastest pace since November on the weak increase in new orders, while foreign demand rent for the fourth straight time, although the rate of decline slowed to the softest of the series. Meanwhile, payrolls fell for a second consecutive month, and the backlog increased steadily, though it was the weakest since March. On the price front, input cost inflation accelerated to the fourth-fastest speed in the survey's history, driven by sharp increases in raw material prices. Meanwhile, output cost inflation slowed for the first time in three months to its lowest since January. Finally, market sentiment fell to an eight-month low.

LOOKING AHEAD:   

Today, investors will receive:

- EUR: German Trade Balance, Spanish Unemployment Change, Sentix Investor Confidence, PPI m/m, and German Buba President Nagel Speaks.

- AUD: MI Inflation Gauge m/m, ANZ Job Advertisements m/m, and Building Approvals m/m.

- JPY: Monetary Base y/y.

- CHF: CPI m/m.

- CAD: Manufacturing PMI and BOC Business Outlook Survey.

KEY EQUITY & BOND MARKET DRIVERS:

- GE: German 10-year bond yields fell below a four-week low of 1.1 percent in early July, as heightened recession risks offset expectations of policy tightening following new inflation data. Manufacturing PMI data showed that factory production and new orders in the eurozone contracted for the first time since 2020, reflecting a sharp drop in demand. Meanwhile, consumer inflation in the euro extended its record high to 8.6 percent as higher-than-expected data from France, Italy, and Spain offset slower price growth in Germany. At the European Central Bank's annual forum, President Lagarde said the central bank would accelerate the pace of tightening in the third quarter if the inflation outlook remains high while confirming a 25-basis point increase in July. The ECB will also roll out new tools to avoid a split among member states, as promises of higher borrowing costs led to an uneven fall in bond prices in June.

- US: U.S. 10-year Treasury yields fell below 2.9%, a level not seen in a month, as investors scrambled to buy safe-haven assets amid persistent fears that aggressive tightening by the Federal Reserve to tame sky-high prices is finally ending would plunge the U.S. economy into recession. Those concerns were further exacerbated by weak economic data last week, namely signs of slowing consumer spending, with consumer morale at a 16-month low and GDP data below expectations. In addition, the core personal consumption expenditures index, the Fed's preferred inflation gauge, fell to a six-month low of 4.7% in May 2022, a sign that price increases may be slowing but remain near multi-decade highs. In Europe, deteriorating growth prospects and record inflation have sparked a similar boom in government debt, with German 10-year bond yields falling below 1.5% for the first time in four weeks.

-  US: Stock futures contracts linked to the three major stock indexes fell about 0.5% on Friday, amid concerns that the economy could face challenging times, with central banks, including the Federal Reserve tightening money to slow the economy. These concerns were further exacerbated by disappointing economic data last week, with signs of slowing consumer spending, consumer morale at a 16-month low, and GDP data below expectations. In addition, the core personal consumption expenditures index, the Fed's preferred inflation gauge, fell to a six-month low of 4.7% in May 2022, a sign that price increases may be slowing but remain near multi-decade highs. This followed sharp first-half and quarterly declines across all major U.S. indexes, particularly the S&P 500, which had its most significant first-half drop since 1970.

- UK: U.K. 10-year gilt yields continued to fall below 2.2 percent, their lowest level in a month, as recession fears fueled risk sentiment and led investors to seek the safety of government debt. The June domestic manufacturing PMI was revised for the first time in 17 months, with new orders falling for the first time in 17 months to reflect the slump in demand. Meanwhile, UK business investment contracted for the first time in a year, adding signs of an economic slowdown. The UK economy contracted 0.3% in April and 0.1% in March, while inflation surged to a 40-year high of 9.1% in May. On the monetary policy front, the Bank of England has raised interest rates five times since it became the first major central bank to raise rates in the wake of the COVID-19 pandemic in December.

- IT: Yields on Italian 10-year BTP bonds fell to 3.3 percent, their lowest level in a month, as safe-haven behavior outweighed the rating outlook for government bonds amid recession fears. Domestic and Eurozone manufacturing PMI data for June showed a sharp drop in new orders, reflecting a decline in demand, while output in the euro also fell. Meanwhile, the eurozone and domestic consumer price indices beat market expectations, with the former hitting a record high. ECB President Christine Lagarde said the central bank's tightening path could accelerate in the third quarter if inflation remains high, and investors are waiting for the ECB's new tools to avoid a split. The spread between the 10-year BTP and the Bundesbank held steady at 2 points, well below a two-year high of 2.6 hits in June, reflecting a lower view of Italian debt risk.

STOCK MARKET SECTORS:

- High: Utilities, Real Estate, Consumer Staples, Consumer Discretionary, Financials.

- Low: n/a

TOP CURRENCY & COMMODITIES MARKET DRIVERS: 

- GBP: Sterling struggled in early July, falling against major currencies, falling below $1.20, or more than 1%, near its lowest point since the outbreak of the virus in March 2020. The Sterling's appeal has waned as investors turn to safe-haven currencies amid growing jitters over a looming recession. At the same time, uncertainty over an Irish deal and waning expectations of a tightening outlook by the Bank of England also hurt the pound. The Bank of England had raised rates five times since December when it was the first major central bank to raise borrowing costs post-coronavirus. Still, now traders have cut some bets on rate hikes as recent weak economic data could. It's an early sign that austerity is starting to weigh on growth. Sterling had lost 10% at the end of the six-month 2022 session last session, its worst first-half performance since 2008.

- USD: The U.S. dollar index broke above 105, near its highest level since December 2002, supported by the Fed's staunchly hawkish stance and escalating global recession risks. Several Fed policymakers, including Chairman Jerome Powell, have said they are firmly committed to reducing inflation even at the risk of a recession, foreshadowing another 75-basis point rate hike in July. The most apparent buying activity was GBP/USD, which fell to a two-year low. Risk-sensitive currencies such as the Australian and New Zealand dollars also rose sharply. DXY is up more than 1% last week, following a strong second quarter.

- EUR: The euro changed hands around $1.04, not far from a five-year low of $1.035 hit in May, when the monetary policy gap between the European Central Bank and the Federal Reserve was expected to widen. Europe's energy crisis has further clouded the euro zone's growth prospects, making it difficult for the ECB to rein in record inflation. In June 2022, annual inflation in the euro area rose to 8.6%, again above market expectations. ECB President Christine Lagarde said she believed the eurozone was unlikely to return to a low-inflation environment while confirming a 25-basis-point rate hike in July after multiple ECB policymakers called for a short walk. Instead, Fed policymakers, including Chairman Jerome Powell, supported another 75-basis point rate hike at the central bank's next meeting.

- CNY: The offshore yuan edged down to around 6.71 per dollar, trading in a sideways range over the past two weeks despite a string of upbeat economic data, suggesting China's economy is recovering amid the easing of the COVID-19 situation. In June, China's manufacturing and services sectors expanded for the first time in four months as authorities gradually lifted virus restrictions and resumed output and consumption. Meanwhile, investors remained wary of China's strict implementation of a zero-coronavirus policy amid concerns that the country remains vulnerable to lockdowns. In addition, Yi Gang, governor of the People's Bank of China, said China's policy stance would remain accommodative to support economic recovery. That contrasts with the hawkish tendencies of other major central banks, raising concerns about capital outflows and currency weakness.

- NZD: The New Zealand dollar fell below $0.62 on Friday, hitting its lowest level in two years, as the commodity currency came under pressure from the Federal Reserve's aggressive tightening program and heightened global recession risks. Recent figures also show that 63 percent of New Zealand businesses expect economic conditions to worsen in the year ahead, mainly due to supply disruptions and surging cost pressures, underscoring risks to the country's economic trajectory. That challenges the Reserve Bank of New Zealand, which is expected to stick to its aggressive tightening policy to lower inflation, even if it means there is a risk of a recession. As a result, markets are pricing in another 50-basis point hike in July, taking rates to 2.50% and around 4% by the end of the year.

CHART OF THE DAY:

The Australian dollar fell below $0.685 on Friday, hitting its lowest level in two years, as the commodity currency came under pressure from the Federal Reserve's aggressive tightening program and heightened global recession risks. There are also signs that the Australian economy is cooling, house prices are falling, and consumer confidence is mired in a quagmire. As a result, the Aussie also weakened, although the Reserve Bank of Australia is expected to raise interest rates by another half a basis point next week after raising rates by more than 50 basis points in June. Markets are betting that the central bank will raise interest rates to 3.25% by the end of the year. RBA governor Philip Lowe recently said there would be further tightening as interest rates remain "very low," He expects inflation to hit 7 percent by the end of the year. Still, he underestimated the cost of an outsized 75 basis point hike.

- AUDUSD - D1, Resistance around ~ 0.69177, Support (target zone) around  ~ 0.67733

GLOBAL CAPITAL MARKETS OVERVIEW:   Wall Street closed higher on the first trading day of the third quarter as stocks rebounded from earlier losses in thin volumes ahead of the holiday-extended weekend, with utilities, consumer services, and retailers leading gains. The Dow rose 322 points, the S&P 500 gained 1.1%, and the Nasdaq gained 0.9%. Still, all three major indexes posted weekly losses, with the Nasdaq underperforming at 4.1%, the S&P down 2.2%, and the Dow down 1.1%. The survey of manufacturers showed activity levels remained near two-year lows in June, adding to a series of weak data earlier in the week of poor consumer morale and worse-than-expected GDP data. Among individual stocks, chipmakers hit rock bottom after Micron posted a gloomy outlook, and retailer Kohl's tumbled 19.7% after delivering disappointing guidance. Last session, the Dow and S&P 500 had their worst first-half performances since 1962 and 1970, respectively, while the Nasdaq had its worst half-year performance. Europe's major stock indexes ended flat on Friday, with Frankfurt's DAX up 0.1 percent but still near levels not seen since November 2020 and the pan-European Stoxx 600 flat after its most significant first-half drop since the previous session in 2008. Fresh economic data added to concerns about stagflation as the European Central Bank plans to start a tightening cycle at its July meeting after 11 years of ultra-easy monetary policy. Eurozone inflation surged to a new record 8.6% in June, showing no signs of peaking. Purchasing managers' index (PMI) data confirmed that manufacturing activity in Europe's major economies slowed to the highest level since 2020. Meanwhile, the ECB began buying bonds from Italy, Spain, Portugal, and Greece, with some of the proceeds coming from maturing German, French and Dutch bonds to limit widening yield spreads, Reuters reported. The DAX fell 2.3% on the week, its fifth straight weekly loss, and the Stoxx 600 lost 1.5%. The CAC 40 gained 0.14% for the week to end the week at 5,931, snapping two sessions of losses as traders took advantage of stock valuations on the first day of the quarter and shrugged off recession fears spurred by aggressive monetary tightening. Auto, defense, and technology stocks led gains, while bank stocks retreated on interest rate fears. Airbus jumped nearly 3 percent, topping the index after receiving orders for 292 planes from China's aviation group, while Renault rose 2.37 percent. Elsewhere, Sodexo shares rose more than 3.7% after the food service group reported better-than-expected quarterly revenue, supported by higher prices and a post-pandemic recovery. In contrast, STMicroelectronics fell 3 percent, the most on an index of U.S. peer Micron Technology's disappointing forecast for the quarter. For the week, the CAC 40 fell 2.34% as concerns over higher interest rates shifted investors from riskier equity assets to the bond market. The FTSE MIB index edged to 21,350 on Friday, still near a 17-month low hit in the previous session, as investors reassessed recession fears amid a flurry of new economic data. Eurozone inflation rose to a record 8.6%, while domestic data rose to a 36-year high of 8%, fueling speculation that the ECB could accelerate tightening in the third quarter. Meanwhile, domestic and eurozone manufacturing PMI data showed a sharp contraction in new orders, reflecting lower demand and adding to fears of an economic slowdown as borrowing costs rise. Utilities were the major gainers in the session, as investors priced in a further 8 billion euros worth of new energy aid from the government to offset a surge in utility prices from Russia's gas cuts. On the other hand, technology and consumer goods stocks closed lower. The FTSE 100 closed essentially flat at 7,167 at the end of Friday's turmoil, down 0.6% for the week, weighed down by energy and mining stocks amid stagflation concerns. In addition, weaker-than-expected manufacturing growth in June pushed investors further away from risk-sensitive assets. A PMI survey showed new orders fell for the first time since January last year. In addition, data from the Bank of England showed consumers were more cautious about lending as the central bank raised interest rates to combat soaring inflation. Among individual stocks, Jupiter Fund Management and Abrdn fell 3.5% and 3.1%, respectively, after Citi analysts downgraded both stocks to sell. The MOEX-Russia index closed at 2,207 on Friday, still at around two-month lows after falling 7.3% yesterday, as investors continued to assess Russia after Gazprom forwent record-earning dividend payments and the health of the business environment. Shares in the state-backed gas giant fell 7%, extending yesterday's 30% decline. Shortly before the close, Nord Stream AG, a subsidiary of Gazprom, announced that flow through the Nord Stream pipeline would stop for a week and a half due to repairs. The pipeline has been running at 40% capacity, prompting Western leaders to accuse Russia of weaponizing energy supplies. On the other hand, the oil industry rebounded sharply from yesterday's losses. Confidence in the sector remains strong compared to natural gas, as exports to Asia offset demand shunned by European buyers. Rosneft rose 3.5% and Lukoil rose 1%. On Friday, the Shanghai Composite Index fell 0.32% to close at 3388 points, while the Shenzhen Composite Index fell 0.28% to close at 12860 points, giving back some gains from the previous trading day. Survey responses to positive factory activity data. The Caixin China Manufacturing PMI stood at 51.7 in June 2022, returning to growth after three months of contraction. Meanwhile, investors remained cautious amid growing concerns that aggressive monetary tightening by major central banks could tip the global economy into recession. Weighted growth stocks fell, including BYD Corp (-1.3%), Hyundai Abe (-2.1%), and Lange Green Energy (-2.6%). Meanwhile, manufacturing and industrial stocks rose, with Sany Heavy Industry (4.1%), Wuxi Shangji (5.8%), and Suzhou TA&A (10.4%) gaining strongly. The Nikkei 225 lost 1.73% to close at 25,936. In comparison, the broader Topix index fell 1.38% to close at 1,845 on Friday, extending losses from the previous session as a string of disappointing economic data from Japan weighed on market sentiment. Japan's big manufacturers' confidence index fell for the second quarter in the April-June period. Japanese stocks also tracked overnight losses on Wall Street amid growing fears that aggressive monetary tightening by major central banks could tip the global economy into recession. Technology stocks led the declines, with SoftBank Group (-2%), Tokyo Electron (-3.7%), Recruit Holdings (-2.9%), Renesas Electronics (-3.1%) and Sumco Corporation (-3.6%) down sharply. Other index heavyweights also fell, including Toyota Motor (down 1.6%), Fast Retailing (down 4%), and Mitsubishi (down 5.4%). In New Zealand, on the first trading day of the new quarter, the NZX 50 fell 115.54 points, or 1.06%, to settle at a near two-week low of 10,753.16, marking its third straight session of losses and a weekly slump of 2.2%. All three major U.S. indexes reported sharp monthly and quarterly declines on Thursday. In the year's first half, the Dow and the S&P 500 had their worst performances since 1962 and 1970, amid fears of a global recession, persistently high inflation, and the threat of a tightening cycle. News that New Zealand business sentiment fell to a 26-month low in June continued to push investors away from riskier assets. RUA Bioscience fell 7.6%, while Chatham Rock Phosphate fell 5.4%. Other top losers included Fisher & Paykel Healthcare (down 2.1%) and Meridian Energy (down 1.6%). In contrast, travel-related stocks such as Air New Zealand and Auckland Airport rose as China eased restrictions on international tourists and the New Zealand border reopened. Australia S&P/ASX 200 index fell 0.43% to settle at 6540 on Friday, its third straight session of losses, as resource-intensive stocks were weighed down by growing concerns that aggressive monetary tightening by major central banks could derail the global economy into recession. Investors are also gearing up for next week's Reserve Bank of Australia policy meeting, which is expected to raise interest rates by another half a percentage point. Energy stocks led losses as oil prices weakened, with Woodside Energy (down 4.4%), Santos Ltd (down 2.8%), and Ampol Ltd (down 1.2%) falling sharply. Heavy mining and gold stocks also fell, including BHP Billiton (down 2.9%), Rio Tinto (down 2.3%), Fortescue Metals (down 3%), and Newcrest Mining (down 3%) and Northern Star Resources (down 0.4%). Meanwhile, financial and consumer stocks bucked the trend, and tech stocks were mixed on Friday. REVIEWING ECONOMIC DATA:  Looking at the last economic data: - US: Wall Street had a lackluster first day of trading in the third quarter. New financial data added concerns that the economy can't afford a hike in the Federal Reserve's inflation target. The survey of manufacturers showed activity levels in June at two-year low, missing market expectations, adding to a series of weak data earlier in the week of poor consumer morale and weaker-than-expected GDP. On the corporate front, shares of retailer Kohl's tumbled about 20% after releasing disappointing guidance. Last session, the Dow and S&P 500 had their worst performances since 1962 and 1970, respectively, while the Nasdaq had its worst half-year performance.  - US: The ISM Manufacturing PMI fell to 53 in June 2022 from 56.1 in May, indicating that factory activity grew at the slowest pace since June 2020 and below the consensus forecast of 54.9. New orders contracted for the first time in two years (49.2 to 55.1), suggesting rising interest rates are hurting demand. In addition, employment fell further (47.3 to 49.6), even as companies progressed in addressing short-term labor shortages at all levels of the supply chain. Meanwhile, supplier deliveries slowed (57.3 vs. 65.7), while production (54.9 vs. 54.2) and inventories (56 vs. 55.9) grew slightly faster, and price pressure eased (78.5 vs. 82.2). Meanwhile, business sentiment remains optimistic about demand, but companies cite supply chain and pricing issues as their biggest concerns. - US: In May 2022, U.S. construction spending fell 0.1% from the previous month to a seasonally adjusted annual rate of $1.78 trillion, compared with a 0.8% rise in April and a 0.4% rise expected by the market. Public construction spending fell 0.8% from the previous month, followed by lower spending on residential construction (-0.7%) and non-residential building (-0.8%). Meanwhile, the private structure was little changed, as higher construction spending in residential (0.2%) and manufacturing (1.2%) more than offset lower construction spending on roads (2.3%) and healthcare (1.8%). - US: The S&P Global U.S. Manufacturing Purchasing Managers’ Index was revised to 52.7 in June 2022 from an initial 52.4 but still indicated that factory activity was growing at the slowest pace since July 2020. New orders fell due to inflationary pressures, waning customer confidence in the outlook, and supply chain disruptions. As a result, firms use their current holdings of inputs and finished goods to supplement production, input purchases stall, and supply chain delays ease. The decline in new orders and continued employment growth have made clearing the backlog more successful, which has slowed significantly. On the price front, input price inflation was the lowest in three months, and output cost inflation also moderated. Meanwhile, businesses renewed their inflation concerns as their confidence in their outlook for the year ahead fell to the lowest level since October 2020. - FR: From January to May 2022, the French government budget deficit fell to 82.3 billion euros from 118.8 billion euros a year earlier. Government spending fell 6.3 percent to 198.5 billion euros, while revenue rose 22.2 percent to 136 billion euros. Meanwhile, the Treasury Special Account, which tracks inflow and outflow balances of targeted revenues and expenditures, such as those from local governments, posted a deficit of 19.4 billion euros, down from 17.8 billion euros a year earlier - UK: Net borrowing on UK personal mortgage debt rose to £7.4bn in May from an upwardly revised £4.2bn in April, above market estimates of £4.15bn. This is the highest level since September last year and above the pre-pandemic average of £4.3bn in the 12 months to February 2020. Total loans rose to £28.4 billion in May from £26.7 billion in April, while total repayments rose slightly from £21.6 billion in April to £21.8 billion in May. - IT: According to preliminary estimates, annual inflation in Italy could accelerate to 8% in June 2022, the highest level since January 1986, beating market forecasts for a 7.4% increase, compared with last month's growth rate was 6.8%. The cost of energy commodities rose faster (48.7% vs. 42.6% in May), driven by non-regulated entities (39.9% vs. 32.9%), while regulated energy inflation remained unchanged (64.3%). Prices were also higher for processed foods (8.2 percent versus 6.6 percent) and unprocessed foods (9.6 percent versus 7.9 percent), as well as recreational and cultural services (5 percent versus 4.4 percent). As a result, annual core inflation, excluding energy and unprocessed food, rose to 3.8% from 3.2% the previous month. On a monthly basis, consumer prices were likely to increase 1.2%, well above consensus expectations of 0.6% and accelerating from 0.8% in May. - EU: Preliminary estimates put annual inflation in the eurozone at a record 8.6% in June 2022, up from 8.1% in May. The figures beat market expectations of 8.4%, adding to the case for the European Central Bank to raise interest rates for the first time in 11 years in July. Energy prices continued to rise (41.9% vs. 39.1% in May); food, alcohol and tobacco (8.9% vs. 7.5%); non-energy manufactured goods (4.3% vs. 4.2%), but services declined slightly (3.4% vs. 3.5%). Excluding energy, inflation also rose to 5% from 4.6%, but the core index, which excludes the cost of energy, food, alcohol, and tobacco, fell from 3.8% to 3.7%. Compared with the previous month, consumer prices rose 0.8%, unchanged from May. - GB: The S&P Global/CIPS UK Manufacturing PMI fell to a two-year low of 52.8 in June 2022 from 54.6 in May. The figure was revised down from an initial estimate of 53.4. As a result, production growth reached a near standstill, and new orders were contracted for the first time in 17 months. Across industries, the output of consumer goods producers fell markedly, while the investment goods sector again saw robust growth. At the same time, the increase in employment was associated with increased output, staff shortages, and a reduction in the backlog. In addition, inflationary pressures remain high due to scarcity of raw materials, tight supply chains, and rising prices for commodities, electronics, energy, oil, paper, plastics, and wood. The higher costs were partly passed on to customers through higher sales prices. Finally, business optimism fell to its lowest level since May 2020. That's slightly below the pre-pandemic average of 66,700 for the 12 months through February 2020. Re-mortgage only involves re-mortgage with other lenders. That's still below the pre-pandemic average of 49,500. - SW: Sweden's Swedbank Manufacturing PMI fell to 53.7 in June 2022 from 55.2 the previous month. The latest figures suggest that the sector's growth was the weakest since July 2020 as supply chains continued to be disrupted due to the war in Ukraine. The most significant negative contribution came from delivery time (63.9 vs. 69.1), followed by employment (53.9 vs. 56.7) and new orders (52.1 vs. 53.4). Meanwhile, production (54.9 vs. 53.7) and purchased inventory (60.0 vs. 62.7) contributed positively to the index. However, the measure of output expectations fell to 62.2 in June from 66.5 in May. - RU: The S&P Global Russia Manufacturing Purchasing Managers' Index edged to 50.9 in June 2022 from 50.8 in May. The data showed factory activity expanded for a second month as new orders returned to growth, driven by rising domestic demand and new project agreements. At the same time, production continued to decline due to a sharp drop in exports and shortages of raw materials. Employment rose for the first time in five months as companies ramped up hiring. On the price front, input price inflation fell to its lowest level since February 2020, while output prices fell for the first time since March 2017. Finally, sentiment rose to a four-month high in hopes of increased customer demand and stable economic conditions. - SK: The S&P Global Korea Manufacturing PMI fell to a three-month low of 51.3 in June 2022 from 51.8 in April but marked the 21st consecutive month of growth. Output contracted at the fastest pace since November on the weak increase in new orders, while foreign demand rent for the fourth straight time, although the rate of decline slowed to the softest of the series. Meanwhile, payrolls fell for a second consecutive month, and the backlog increased steadily, though it was the weakest since March. On the price front, input cost inflation accelerated to the fourth-fastest speed in the survey's history, driven by sharp increases in raw material prices. Meanwhile, output cost inflation slowed for the first time in three months to its lowest since January. Finally, market sentiment fell to an eight-month low. LOOKING AHEAD:    Today, investors will receive: - EUR: German Trade Balance, Spanish Unemployment Change, Sentix Investor Confidence, PPI m/m, and German Buba President Nagel Speaks. - AUD: MI Inflation Gauge m/m, ANZ Job Advertisements m/m, and Building Approvals m/m. - JPY: Monetary Base y/y. - CHF: CPI m/m. - CAD: Manufacturing PMI and BOC Business Outlook Survey. KEY EQUITY & BOND MARKET DRIVERS: - GE: German 10-year bond yields fell below a four-week low of 1.1 percent in early July, as heightened recession risks offset expectations of policy tightening following new inflation data. Manufacturing PMI data showed that factory production and new orders in the eurozone contracted for the first time since 2020, reflecting a sharp drop in demand. Meanwhile, consumer inflation in the euro extended its record high to 8.6 percent as higher-than-expected data from France, Italy, and Spain offset slower price growth in Germany. At the European Central Bank's annual forum, President Lagarde said the central bank would accelerate the pace of tightening in the third quarter if the inflation outlook remains high while confirming a 25-basis point increase in July. The ECB will also roll out new tools to avoid a split among member states, as promises of higher borrowing costs led to an uneven fall in bond prices in June. - US: U.S. 10-year Treasury yields fell below 2.9%, a level not seen in a month, as investors scrambled to buy safe-haven assets amid persistent fears that aggressive tightening by the Federal Reserve to tame sky-high prices is finally ending would plunge the U.S. economy into recession. Those concerns were further exacerbated by weak economic data last week, namely signs of slowing consumer spending, with consumer morale at a 16-month low and GDP data below expectations. In addition, the core personal consumption expenditures index, the Fed's preferred inflation gauge, fell to a six-month low of 4.7% in May 2022, a sign that price increases may be slowing but remain near multi-decade highs. In Europe, deteriorating growth prospects and record inflation have sparked a similar boom in government debt, with German 10-year bond yields falling below 1.5% for the first time in four weeks. -  US: Stock futures contracts linked to the three major stock indexes fell about 0.5% on Friday, amid concerns that the economy could face challenging times, with central banks, including the Federal Reserve tightening money to slow the economy. These concerns were further exacerbated by disappointing economic data last week, with signs of slowing consumer spending, consumer morale at a 16-month low, and GDP data below expectations. In addition, the core personal consumption expenditures index, the Fed's preferred inflation gauge, fell to a six-month low of 4.7% in May 2022, a sign that price increases may be slowing but remain near multi-decade highs. This followed sharp first-half and quarterly declines across all major U.S. indexes, particularly the S&P 500, which had its most significant first-half drop since 1970. - UK: U.K. 10-year gilt yields continued to fall below 2.2 percent, their lowest level in a month, as recession fears fueled risk sentiment and led investors to seek the safety of government debt. The June domestic manufacturing PMI was revised for the first time in 17 months, with new orders falling for the first time in 17 months to reflect the slump in demand. Meanwhile, UK business investment contracted for the first time in a year, adding signs of an economic slowdown. The UK economy contracted 0.3% in April and 0.1% in March, while inflation surged to a 40-year high of 9.1% in May. On the monetary policy front, the Bank of England has raised interest rates five times since it became the first major central bank to raise rates in the wake of the COVID-19 pandemic in December. - IT: Yields on Italian 10-year BTP bonds fell to 3.3 percent, their lowest level in a month, as safe-haven behavior outweighed the rating outlook for government bonds amid recession fears. Domestic and Eurozone manufacturing PMI data for June showed a sharp drop in new orders, reflecting a decline in demand, while output in the euro also fell. Meanwhile, the eurozone and domestic consumer price indices beat market expectations, with the former hitting a record high. ECB President Christine Lagarde said the central bank's tightening path could accelerate in the third quarter if inflation remains high, and investors are waiting for the ECB's new tools to avoid a split. The spread between the 10-year BTP and the Bundesbank held steady at 2 points, well below a two-year high of 2.6 hits in June, reflecting a lower view of Italian debt risk. STOCK MARKET SECTORS: - High: Utilities, Real Estate, Consumer Staples, Consumer Discretionary, Financials. - Low: n/a TOP CURRENCY & COMMODITIES MARKET DRIVERS:  - GBP: Sterling struggled in early July, falling against major currencies, falling below $1.20, or more than 1%, near its lowest point since the outbreak of the virus in March 2020. The Sterling's appeal has waned as investors turn to safe-haven currencies amid growing jitters over a looming recession. At the same time, uncertainty over an Irish deal and waning expectations of a tightening outlook by the Bank of England also hurt the pound. The Bank of England had raised rates five times since December when it was the first major central bank to raise borrowing costs post-coronavirus. Still, now traders have cut some bets on rate hikes as recent weak economic data could. It's an early sign that austerity is starting to weigh on growth. Sterling had lost 10% at the end of the six-month 2022 session last session, its worst first-half performance since 2008. - USD: The U.S. dollar index broke above 105, near its highest level since December 2002, supported by the Fed's staunchly hawkish stance and escalating global recession risks. Several Fed policymakers, including Chairman Jerome Powell, have said they are firmly committed to reducing inflation even at the risk of a recession, foreshadowing another 75-basis point rate hike in July. The most apparent buying activity was GBP/USD, which fell to a two-year low. Risk-sensitive currencies such as the Australian and New Zealand dollars also rose sharply. DXY is up more than 1% last week, following a strong second quarter. - EUR: The euro changed hands around $1.04, not far from a five-year low of $1.035 hit in May, when the monetary policy gap between the European Central Bank and the Federal Reserve was expected to widen. Europe's energy crisis has further clouded the euro zone's growth prospects, making it difficult for the ECB to rein in record inflation. In June 2022, annual inflation in the euro area rose to 8.6%, again above market expectations. ECB President Christine Lagarde said she believed the eurozone was unlikely to return to a low-inflation environment while confirming a 25-basis-point rate hike in July after multiple ECB policymakers called for a short walk. Instead, Fed policymakers, including Chairman Jerome Powell, supported another 75-basis point rate hike at the central bank's next meeting. - CNY: The offshore yuan edged down to around 6.71 per dollar, trading in a sideways range over the past two weeks despite a string of upbeat economic data, suggesting China's economy is recovering amid the easing of the COVID-19 situation. In June, China's manufacturing and services sectors expanded for the first time in four months as authorities gradually lifted virus restrictions and resumed output and consumption. Meanwhile, investors remained wary of China's strict implementation of a zero-coronavirus policy amid concerns that the country remains vulnerable to lockdowns. In addition, Yi Gang, governor of the People's Bank of China, said China's policy stance would remain accommodative to support economic recovery. That contrasts with the hawkish tendencies of other major central banks, raising concerns about capital outflows and currency weakness. - NZD: The New Zealand dollar fell below $0.62 on Friday, hitting its lowest level in two years, as the commodity currency came under pressure from the Federal Reserve's aggressive tightening program and heightened global recession risks. Recent figures also show that 63 percent of New Zealand businesses expect economic conditions to worsen in the year ahead, mainly due to supply disruptions and surging cost pressures, underscoring risks to the country's economic trajectory. That challenges the Reserve Bank of New Zealand, which is expected to stick to its aggressive tightening policy to lower inflation, even if it means there is a risk of a recession. As a result, markets are pricing in another 50-basis point hike in July, taking rates to 2.50% and around 4% by the end of the year. CHART OF THE DAY: The Australian dollar fell below $0.685 on Friday, hitting its lowest level in two years, as the commodity currency came under pressure from the Federal Reserve's aggressive tightening program and heightened global recession risks. There are also signs that the Australian economy is cooling, house prices are falling, and consumer confidence is mired in a quagmire. As a result, the Aussie also weakened, although the Reserve Bank of Australia is expected to raise interest rates by another half a basis point next week after raising rates by more than 50 basis points in June. Markets are betting that the central bank will raise interest rates to 3.25% by the end of the year. RBA governor Philip Lowe recently said there would be further tightening as interest rates remain "very low," He expects inflation to hit 7 percent by the end of the year. Still, he underestimated the cost of an outsized 75 basis point hike. - AUDUSD - D1, Resistance around ~ 0.69177, Support (target zone) around  ~ 0.67733