“In my view, the greatest way to optimize the positioning of a portfolio at a given point in time is through deciding what balance it should strike between aggressiveness and defensiveness. And I believe the aggressiveness/defensiveness balance should be adjusted over time in response to changes in the state of the investment environment and where a number of elements stand in their cycles.” ― Howard Marks

1. Russia Defaults on Foreign Debt for First Time Since Communist Revolution — the Russian government was unable to compensate creditors on about $100 million of interest denominated in dollars and euros after a 30-day grace period following the May 27 deadline expired. Although President Vladimir Putin’s administration has the funds, reserves at Russia’s central bank are frozen and the biggest commercial banks are unable to trade in international markets under sanctions following Moscow’s invasion of Ukraine in February. Bondholders themselves will probably want to wait before formally starting default proceedings in the hope of being paid back after the war is over. Declaring default now would force Russia to pay back the principle on the loans immediately, but the same sanctions preventing interest payments would also stop those payments as well.
2. U.S. Bans Russian Gold Imports, Blacklists State-Owned Rostec — the U.S. has banned imports of Russian gold, broadening sanctions against the country following the Kremlin’s invasion of Ukraine in February, the U.S. Treasury Department said Tuesday. The Treasury on Tuesday also blacklisted 70 groups, many of which the U.S. said are critical to Russia’s defense industrial sector, including state-owned defense conglomerate Rostec, as well as 29 Russians. The official ban on new imports of Russian gold comes as Moscow’s invasion of Ukraine continues into its fourth month. The U.S. and the U.K. announced the move on Sunday during a Group of Seven meeting in the Bavarian Alps, with the rest of the G-7 joining the ban. Gold is Russia’s second most valuable export after energy and “rakes in tens of billions of dollars,” President Biden tweeted.
3. Powell Says Fed Must Accept Higher Recession Risk to Combat Inflation — Federal Reserve Chairman Jerome Powell said he was more concerned about the risk of failing to stamp out high inflation than about the possibility of raising interest rates too high and pushing the economy into a recession. Mr. Powell said the central bank had to raise rates rapidly, even if that raises the risk of recession, to avoid a worse danger for the economy—of higher inflation becoming entrenched. He said the Fed didn’t have the luxury of moving rates up gradually because of concern that the recent period of high inflation may lead consumers and price setters to expect elevated prices to persist. Central banks across the globe are in a hurry to raise interest rates amid surging price pressures. Rising fuel costs and supply-chain disruptions from Russia’s war against Ukraine have sent prices higher in recent months. In the U.S., such increases are adding to inflation that was already high as demand surged last year from the reopening of the economy and aggressive government stimulus.
4. Markets Post Worst First Half of a Year in Decades — Accelerating inflation and rising interest rates fueled a monthslong rout that left few markets unscathed. The S&P 500 fell 21% through Thursday, suffering its worst first half of a year since 1970, according to Dow Jones Market Data. Investment-grade bonds, as measured by the iShares Core U.S. Aggregate Bond exchange-traded fund, lost 11%—posting their worst start to a year in history.
Stocks and bonds in emerging markets tumbled, hurt by slowing growth. And cryptocurrencies came crashing down, saddling individual investors and hedge funds alike with steep losses. investors seem to be in agreement about only one thing: More volatility is ahead. That is because central banks from the U.S. to India and New Zealand plan to keep raising interest rates to try to rein in inflation. The moves will likely slow down growth, potentially tipping economies into recession and generating further tumult across markets.

The week ahead — Economic data from Econoday.com:

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