The ASX will finish the week in positive territory today, having risen 2.34% over the last seven days.
Nine of 11 sectors were in the green over the week, led up by Information Tech (7.59%). Financials (4.59%), Materials (3.79%) Real Estate (2.8%), Consumer Discretionary (2.71%), Energy (1.93%), Telecommunications (2.54%), Utilities (0.27%) and Industrials (0.97%) were all higher.
Consumer Staples (-0.33%) and Healthcare (-0.43%) dipped into the red, but are still up for the month.
The Australian dollar fell 2% against the US dollar over the week, but gained some 0.46% back today.
ECB raises interest rates for first time in over a decade
The European Central Bank has raised the benchmark deposit rate for the first time in over a decade, hiking it 50 basis points to 0% – the first time the rate has been in the positive since 2014.
The market is expecting more rate hikes to come as central banks the world over attempt to grapple with rampant inflation.
"The market has brought forward rate hike pricing for the ECB, with some chance of 75 basis points at the next meeting in September and around a 70% chance of another 50-basis-point hike priced for October but little change in the expected peak in the cycle," National Australia Bank’s Tapas Strickland wrote.
The RBA has drawn criticism here in Australia for its rapid and perhaps aggressive rate hikes, although deputy governor Michele Bullock asserted Australian households are in a “fairly good position” to absorb higher interest in a recent speech to the Economic Society of Australia.
Whether the central Australian bank has taken the correct actions with the right goals in mind is likely to be a core facet of an upcoming review of the RBA, which will also focus on the consumer price inflation benchmark and "the interaction of monetary policy with fiscal and macroprudential policy".
Regular reviews are common for central banks the world over, which begs the question; why has it taken 30 years to review ours?
Russia constricts gas supply to several EU states
In the latest economic volley in the Russia-Ukraine war, Russia has cut gas supplies to Poland, Bulgaria, Finland, Denmark and the Netherlands and reduced supplies to six more countries.
Russia is citing a refusal to pay in Russian roubles as its justification, a position Denmark's Prime Minister Mette Frederiksen called "a kind of blackmailing". The EU Commission's president Ursula von der Leyen echoed the sentiment.
"Russia is blackmailing us. They are using energy as a weapon.
Europe has to be prepared for a potential full disruption of Russian gas. This is a likely scenario.
And if we act in unity, we can address any crisis."
College read-out by President @vonderleyen, 20 July 2022.
— European Commission ???????? (@EU_Commission) July 20, 2022
Concerns about gas supplies may seem odd in the face of record high temperatures across Europe, but the EU’s gas reserves are only 65% full at present, a worrying sign that winter will not be kind to the continent.
If homes, schools and hospitals are threatened by low gas supplies, governments will be forced to impose rationing on manufacturing and business, undercutting already struggling economies even further.
The European Union is scrambling to convert to liquified natural gas (LNG) which can be sourced from the US or Qatar, but construction of LNG import terminals could take years.
Chinese economy begins to show cracks
COVID-19, the fuel crisis, and supply chain squeeze have hit the global economy hard. No nation has escaped unscathed, and many have taken sizable hits to their economic growth – especially in the short term.
China has maintained a stout façade during the turmoil, but cracks are beginning to show in Beijing’s economy.
Six banks in rural China have frozen cash withdrawals since mid-April, having been pummelled by the central government’s efforts to pop the property bubble and bring cascading debt under control.
As a result, thousands have essentially been robbed of their funds and left unable to access their savings, sparking violent protests between customers and authorities.
Authorities in the province of Henan, where four of said banks are located, said they will begin paying back funds that had been frozen in batches to ease anxiety among depositors.
A report by risk assessment firm SinoInsider said these issues "appear to be the tip of the iceberg of serious systemic and financial risks with small- and medium-sized banks in China.”
"Other small- and medium-sized banks could soon be found to be facing similar problems, particularly as financial contagion from Evergrande's debt crisis spreads further and the Chinese economy markedly deteriorates," it added.
Perhaps in an attempt to prop up a wobbling economy, the central Chinese government recently formed a new minerals entity, designed to give Chinese steel producers greater bargaining power in negotiations over iron ore imports.
The move has drawn speculation that an end to the unofficial ban on Australian coal imports may be in sight.
Small cap wins for the week
This month has been much kinder to the market, especially small caps, which have risen 7.5% in the last 30 days and 4.91% in the last seven.
Kaiser Reef Ltd (ASX:KAU, ASX:) is up 25.8% after hitting a bonanza-grade intersection of 215 g/t gold at A1 Mine
Aeris Resources Ltd (ASX:AIS) is up 27% on recording high-grade gold at Golden Plateau during resource definition drilling
Archer Materials Ltd (ASX:AXE, OTC:ARRXF) is up 23.9% after the company demonstrated its 12CQ quantum device was compatible with existing fabrication processes
Chase Mining Corporation Ltd (ASX:CML) is up 27.2% following a fast-tracking of exploration at the high-purity McIntosh Graphite Project.