Market Commentary 12th April 2022 from Charlie Hancock

Posted by Telford Mann

Market Commentary 12^th April 2022

Equity Indices

The UK’s FTSE 100 was the strongest performing major index around the globe last week, gaining 1.75%. The index benefitted from a heavy weighting to pharmaceutical and oil companies. The FTSE 250 index declined by 0.21% across the week.

There was a significant divergence in sector performance last week, with healthcare related stocks experiencing strong gains. AstraZeneca saw their share price rise by 8.48% and GlaxoSmithKline gained 7.36%. Although oil prices declined across the week, oil majors experienced gains, with Shell rising by 2.29% and BP moving 3.31% higher. Fears of an economic slowdown hurt banking shares, with Lloyds Banking Group declining by 5.93%.

A survey conducted by the Bank of England (BoE) showed that nearly 50% of businesses expect the Russia-Ukraine war to impact revenues in the coming 12 months. The BoE also said that firms expect to raise their prices by an average of 5% in the coming year.

Europe

All major European equity indices declined last week, resulting in the broad FTSE All World Index – Europe ex UK moving 1.64% lower. Germany’s DAX index fell by 1.13% and France’s CAC 40 declined by 2.04%.

The European Union (EU), the US and other G7 nations implemented fresh sanctions on Russia last week, including a ban on Russian coal imports to the EU. The coal ban appeared to contribute to fears of an energy crisis in Europe.

Minutes from the European Central Bank (ECB) March policy meeting appeared to contribute to declines for European equities last week. The minutes revealed that most members of the central bank’s policy committee are in favour of implementing tighter monetary policy in response to persistent high inflation. Whilst the committee remained divided on the appropriate timescale for policy changes, some members were in favour of stopping the bank’s quantitative easing programme within the next few months.

US equity indices experienced mixed performance last week, with the Dow Jones Industrial Average experiencing a slight decline of 0.28%, the S&P 500 falling by 1.27% and the NASDAQ 100 moving 3.59% lower. A steep rise in US Treasury yields during the week benefitted the Dow Jones index and hindered the technology heavy NASDAQ.

Some areas of the market benefitted from expectations for tighter monetary policy, with the S&P 500 Health Care Sector index gaining 3.44%. Other areas of the market which are typically negatively impacted by interest rate rises sold off, with the S&P 500 Information Technology Sector index falling by 4.39%.

Comments from the governor of the Federal Reserve, Lael Brainard, appeared to negatively impact investor sentiment last week. Brainard, who is usually considered to be the most dovish member of the Fed’s policy committee, stated that the central bank would start to reduce their balance sheet at a “rapid pace” as soon as next month. Minutes from the Fed’s March policy meeting added to investor concerns, with policymakers open to a 0.50% interest rate hike in May, as well as faster than expected balance sheet reduction.

Asia

The broad FTSE All World Index – Asia Pacific declined by 2.10% last week, whilst Japan’s Nikkei 225 fell by 2.46% and China’s Shanghai Composite Index lost 0.94%.

Indicators for growth in China signalled that the economy is slowing, with strict lockdown restrictions in several regions impacting activity. Expectations grew for further monetary easing by the People’s Bank of China (PBOC), with the Chinese government likely to try and limit the economic damage resulting from coronavirus related restrictions. Regulators in Beijing appeared to relax audit requirements for companies with dual stock market listings, helping to calm fears of forced de-listing for companies with US listed shares.

The International Monetary Fund (IMF) lowered their projections for Japanese economic growth in 2022, revising their estimate from 3.3% to 2.4%. Whilst the Bank of Japan are likely to remain accommodative throughout the year, rising commodity prices, exacerbated by a weaker Yen, are likely to slow consumer demand.

The 10-Year UK Gilt Yield reversed all of the previous week’s decline, rising from 1.61% to 1.75% last week. UK government bond yields appeared to rise in response to expectations for faster than expected monetary tightening by the Federal Reserve and ECB.

Europe

The 10-Year German Bund yield rose from 0.55% to 0.70% last week. European bond markets appeared somewhat surprised by the ECB meeting minutes, with rhetoric from policymakers vastly different to the dovish message delivered in late 2021.

The 10-Year Treasury yield climbed from 2.39% to 2.71% last week, reaching the highest level seen since December 2018.

The US Treasury market is now pricing in significant tightening in the coming months, with the Federal Reserve’s target interest rate range in December 2018 being 2% higher than the current target range.

Currency

GBP / USD – Current 1.3025 Previous 1.3114

GBP / EUR – Current 1.1982 Previous 1.1875

The Pound lost 0.68% against the US Dollar last week, whilst gaining 0.90% against the Euro. A risk-off approach amongst investors around the globe appeared to support the Dollar, together with speculation regarding faster than expected tightening by the Federal Reserve.

Commodities

Gold

The Gold spot price regained some ground across the week, rising by 1.14% to reach $1,947.54 per ounce. Risk-off sentiment around the globe appeared to contribute to investors increasing their exposure to the precious metal.

Oil

Oil prices were less volatile last week, with the Brent Crude spot price falling by 1.54% to reach $102.78 per barrel. The recent announcement of increased supply from strategic reserves appeared to add stability to crude prices, whilst lockdown restrictions in China also impacted expectations for demand in the coming months.