Market Commentary 4th April 2022 from Charlie Hancock

Economic data for the UK was mixed, with a closely watched survey showing that business sentiment deteriorated sharply during March. Over 50% of the company directors surveyed said rising energy costs were hurting their businesses. Official GDP for the 4^th quarter of 2021 was revised upwards from 1% to 1.3%. Much of the better than expected growth was attributed to additional spending on coronavirus testing and the booster vaccination campaign.

Data showing a year-on-year increase of 14.3% for house prices during March contributed to gains for housebuilder stocks, with Persimmon PLC rising by 2.48% and Barratt Developments gaining 1.69%.

The possibility of Germany announcing rationing of gas supplies appeared to have some impact on sentiment during the week. The government stated it was a possibility following Russia’s order for foreign buyers of natural gas to pay in Rubles, with Germany rejecting the request and stating they will continue paying in Euros. The German economic minister called on consumers and businesses to reduce their energy consumption.

Key European Central Bank (EBC) members spoke at a conference last week, with President Christine Lagarde telling reporters that the eurozone faces slowing growth and higher inflation in the short term. The central bank’s base case is 3.7% growth for 2022, but under an adverse scenario due to impacts from the Russia-Ukraine conflict, the bank expects growth of 2.5%.

Sentiment on US equities appeared to be impacted by developments in the Russia-Ukraine conflict, with markets rising during the first half of the week before falling back after Russia stated that there had been little progress in peace talks.

Economic data was mixed. The number of jobs created during March was worse than expected, whilst the official unemployment rate came in better than estimated. The Commerce Department released data showing that personal spending rose by 0.2% in February, with economists expecting growth of 0.5%. It appeared that consumers rotated spending away from the purchase of goods, which declined during the month, with spending on services increasing.

China kept strict coronavirus restrictions in place in several regions, with more than 26 million residents in Shanghai remaining in lockdown. Danish shipping giant Moller-Maersk stated that their facilities in the city had closed, whilst the head of Taiwan Semiconductor Manufacturing Co stated that the lockdowns are hurting demand for electronic devices. The Chinese central bank re-iterated that greater policy support is likely to be required as the uncertainties around economic growth persist.

Japan’s Prime Minister, Fumio Kishida, announced that the government intends to deliver additional fiscal stimulus measures in April to counteract the impact of rising energy and commodity costs. The Bank of Japan (BoJ) significantly increased the purchase of Japanese government bonds last week as part of their yield curve control programme, after yields for the 10-Year bond reached the ceiling of 0.25% imposed by the central bank.

GBP / EUR – Current 1.1875 Previous 1.2003

The Pound declined by 0.54% against the US Dollar and 1.07% against the Euro. Data showing a fall in business confidence in the UK likely contributed to weakening sentiment on Sterling.

President Biden announced the largest ever release of oil from US strategic reserves, with one million barrels per day scheduled for 6 months from May. Other nations followed later in the week, agreeing to tap into reserves to try and increase supply in the market.