Market Commentary 19th April 2022 from Charlie Hancock

Posted by Telford Mann

Market Commentary 19^th April 2022

Equity Indices

During a shortened trading week for most markets around the globe, the FTSE 100 declined by 0.69%. The FTSE 250 index fell by 0.25%.

Official data showed that UK economic growth slowed in February. Gross Domestic Product (GDP) expanded by 0.1%, down from 0.8% during January. Employment data indicated that the labour market remains tight, with the jobless rate declining to 3.8% in February and vacancies hitting a record high of nearly 1.3 million last month.

The Consumer Price Index (CPI) rose by 7% in March, with inflation reaching the highest level recorded since 1992. The increase in prices was broad, with higher fuel costs, rising utility bills and increased grocery and restaurant prices contributing to the rise in CPI. The Bank of England (BoE) currently expect inflation to peak at close to 10% later this year.

Europe

Most major European equity indices declined last week, resulting in the broad FTSE All World Index – Europe ex UK moving 1.02% lower. Germany’s DAX index fell by 0.84%, whilst France’s CAC 40 rose by 0.63%. The headline index for France was lifted by gains for luxury goods company LVMH, which accounts for 12% of the CAC 40.

French President Emmanuel Macron won the first round of the Presidential election, beating Marine Le Pen. Whilst financial markets would likely prefer the status quo of a Macron presidency, the reaction to the first round result was muted, given that Le Pen could still win the final round on the 24^th April. Although Macron remains the favourite, current polling suggests the result will be close.

The European Central Bank (ECB) kept monetary policy measures unchanged at their meeting last week, but confirmed that their asset purchase programme will end in the third quarter of this year. The central bank’s president, Christine Lagarde, said there was no clear timetable for interest rate rises following the wind up of the central bank’s asset purchase programme.

All of the major US equity indices declined last week. The S&P 500 fell by 2.13%, the Dow Jones Industrial Average lost 0.78% and the NASDAQ 100 declined by 3.03%. Weakness in technology stocks weighed on the NASDAQ and S&P 500, whilst strong performance for industrial stocks, such as Caterpillar (+4.92%), helped to limit the decline for the Dow Jones index.

The weakness in US stocks last week appeared to be primarily driven by concerns around inflation, which worsened after the release of data showing stronger than expected Producer Price Inflation (PPI) in China. Data released on Tuesday showed that US consumer prices rose by more than expected, with a year-on-year increase of 8.5% in March. Retail sales were weaker than expected during March, prompting investor concerns of further weakness in consumer sentiment.

Rising Treasury yields contributed to declines for interest-rate sensitive technology stocks in the US last week, with Apple falling by 2.82%, Google (Alphabet) losing 4.92% and Meta Platforms (formerly Facebook) moving 5.46% lower.

Asia

Asian equity indices were mixed. The broad FTSE All World Index – Asia Pacific declined by 0.82%, China’s Shanghai Composite index fell by 1.25% and Japan’s Nikkei 225 gained 0.40%.

The number of new coronavirus cases in China continued to rise, with Shanghai remaining under lockdown for the third week in a row. Shipping operators attempted to divert containers to other Chinese ports, with delays in Shanghai worsening. The congestion added to concerns around global supply chains. Chinese President, Xi Jinping, reiterated the country’s zero tolerance approach, stating that control measures should not be relaxed.

The Bank of Japan (BoJ) cut their economic growth forecasts last week, with rising commodity and energy prices expected to dampen growth. The central bank’s governor, Haruhiko Kuroda, stated that the bank needs to maintain current monetary stimulus measures, with the nation’s economic recovery remaining fragile.

The 10-Year UK Gilt Yield rose from 1.75% to 1.89% last week. Data showing higher than expected UK consumer price inflation added to expectations for the BoE to raise interest rates to 1% in May, together with indicators of continued tightening in the labour market.

Europe

The ECB confirming that asset purchases will stop in the third quarter of the year appeared to contribute to rising government bond yields in the Eurozone. The central bank’s messaging on interest rate hikes was vague, with no commitment on timeframes. Across the week, the 10-Year German Bund yield rose from 0.70% to 0.84%.

The 10-Year Treasury yield climbed from 2.71% to 2.83% last week.

Data showing that US consumer price inflation reached the highest rate recorded since 1981 contributed to the rise in yields, together with hawkish comments from some Federal Reserve policymakers.

Currency

GBP / USD – Current 1.3060 Previous 1.3025

GBP / EUR – Current 1.2079 Previous 1.1982

The Pound rose by 0.81% against the Euro last week, whilst continued strength in the US Dollar resulted in Sterling recording a smaller gain of 0.27% against the Dollar.

Commodities

Gold

The Gold spot price rose by 1.58% across the week to reach $1,978.24. The precious metal appeared to benefit from the rotation away from risk assets.

Oil

The Brent Crude spot price rose by 8.68% last week to reach $111.70 per barrel. Comments from The Organization of Petroleum Exporting Countries (OPEC) appeared to drive prices higher, with the group warning that that it may struggle to offset the supply lost from Russia.