Market Commentary 28th March 2022 from Charlie Hancock

Posted by Telford Mann

Market Commentary 28^th March 2022

Equity Indices

The FTSE 100 gained 1.06% last week, with strength in commodity related companies boosting the index. The mid-cap FTSE 250, which has very little exposure to commodity stocks, declined by 0.95%.

Official data showed that consumer prices rose by 6.2% year-on-year in February, with inflation running at a 30-year high. This followed survey results from the Confederation of British Industry (CBI) which indicated that the proportion of manufacturing businesses intending to raise their prices in the coming months hit the highest level since the survey commenced in 1975.

The Bank of England (BoE)’s financial policy committee published a report warning that household incomes and business earnings will come under pressure from the recent increase in energy prices. Chancellor Rishi Sunak attempted to provide some support via Wednesday’s mini-budget, announcing a cut to the rate of fuel duty and a rise in the income threshold at which national insurance contributions begin.

Europe

European equities were mixed last week, although most major indices suffered declines. The broad FTSE All World Index – Europe ex UK moved 1.40% lower. Germany’s DAX index lost 0.74%, whilst France’s CAC 40 declined by 1.01%.

A composite purchasing managers’ index (PMI) covering both the manufacturing and service sectors indicated that business activity in the Eurozone slowed during February, but remained in expansionary territory. Business sentiment in Germany also deteriorated during March, with the conflict between Russia and Ukraine impacting confidence.

Joe Biden announced on Friday that the US and the European Union had reached an energy supply deal, which will see the US and other nations increase liquefied gas exports to Europe in an attempt to reduce the Eurozone’s reliance on Russian gas.

US equity indices moved higher across the week. The S&P 500 rose by 1.79% and the NASDAQ 100 gained 2.32%. The more cyclically exposed Dow Jones Industrial Average delivered a relatively muted return of 0.31%.

PMI readings for the US economy came in higher than expected for both the manufacturing and service sectors. The reading indicated that activity amongst service businesses rose at the fastest pace since July 2021. The number of new unemployment claims came in lower than expected, signalling continued strength in the labour market.

Data on the US property market indicated that sentiment may be cooling off, with new home sales declining by 2% during February and pending sales declining by 4%. Mortgage interest rates continued to rise, with the average 10-year fixed rate reaching 4.00%, up from 2.50% at the end of January.

Asia

Asian equity indices were mixed last week. The broad FTSE All World Index – Asia Pacific gained 0.47%, Japan’s Nikkei 225 rallied by 4.93% and China’s Shanghai Composite Index moved 1.19% lower.

Weakness in the Japanese Yen appeared to boost the share price of export driven businesses, with Toyota rising by 7.80% across the week and Nissan gaining 5.00%. The finance minister emphasised the importance of currency stability and said that the government would analyse the potential impact of volatility in foreign exchange markets. The governor of the Bank of Japan (BoJ), Haruhiko Kuroda, stated that he believes a weak yen is generally positive for the Japanese economy.

Sentiment for Chinese assets appeared to be impacted by rising coronavirus cases. Whilst the Shenzhen region emerged from lockdown, speculation around lockdown restrictions in Shanghai grew amidst a surge in cases. US listed shares for some Chinese technology companies performed well, with concerns around potential de-listing and regulatory issues fading. The New York Stock Exchange listed shares for Alibaba rose by 4.41%, whilst Pinduoduo gained 3.85%.

The 10-Year UK Gilt Yield rose from 1.50% to 1.69%. With the consumer prices index (CPI) rising at the fastest pace since March 1992, expectations for further interest rate rises strengthened during the week.

Europe

Government bond yields across the Eurozone surged last week, with the 10-Year German Bund moving from 0.37% to 0.58%. Whilst there was little newsflow regarding European Central Bank (ECB) policy expectations last week, rising yields elsewhere around the globe appeared to send Eurozone government bond yields higher.

The 10-Year Treasury yield rose sharply across the week from 2.15% to 2.48%.

The Federal Reserve chair, Jerome Powell, stated during a speech that the central bank may deliver hikes in excess of 0.25% at upcoming policy meetings if the committee feel it is necessary. The hawkish comments appeared to fuel the rise in yields, with investors pricing in an increased chance of a 0.50% hike in May. Demand for new US treasuries issued during the week remained strong.

Currency

GBP / USD – Current 1.3182 Previous 1.3176

GBP / EUR – Current 1.2003 Previous 1.1925

The Pound was broadly flat against the US Dollar last week, rising by 0.05%. Against the Euro, Sterling gained 0.65%.

Commodities

Gold

The Gold spot price rose by 1.91%, reaching $1,958.29 per ounce. Continued uncertainty around the Russia-Ukraine conflict and the outlook for inflation and interest rates appeared to support the precious metal last week.

Oil

Oil prices strengthened again last week, rising by 11.79% to reach $120.65 per barrel. The surge in crude prices appeared to be driven by reports of an attack on a Saudi oil facility, together with continued debates around the possibility of an embargo for Russian oil exports.