Market Commentary 25th April 2022 from Charlie Hancock

The FTSE 100 was dragged lower by declines in heavily weighted mining stocks, with concerns regarding weaker demand from China hurting sentiment on the sector. Anglo American saw their share price decline by 16.98% across the week, whilst Glencore fell by 9.61%.

UK economic data released during the week indicated growth is slowing. A composite Purchasing Managers’ Index (PMI) covering both manufacturing and services indicated that business activity expanded at the slowest pace for three months. The composite index was weighted on by the services sector, with momentum in manufacturing businesses gaining during the month. A closely watched consumer confidence index declined to the lowest level since July 2008, whilst retail sales data for March came in worse than expected.

The final round of polling for the French Presidential elections on Sunday saw Emmanuel Macron defeat Marine Le Pen. A composite PMI survey for the Eurozone showed business activity accelerated during April, driven by improvements in the services sector as European nations removed coronavirus related restrictions. The manufacturing sector saw muted growth this month, with businesses citing supply limitations and rising input costs as key issues.

European Central Bank (ECB) members continued to make hawkish remarks during the week. The central bank’s president, Christine Lagarde, confirmed the ECB intends to finish their asset purchase programme in the 3^rd quarter and that interest rate decisions will be dependent on incoming data. Comments from other ECB members during the week suggested that some policymakers are keen on ending the asset purchase programme and implementing an interest rate rise as soon as July.

Rising expectations for steeper interest rate hikes by the Federal Reserve appeared to be one of the main drivers of risk-off sentiment during the week. A key policymaker at the central bank, James Bullard, stated that he is in favour of increasing interest rates to 3.5% by the end of the year, with US inflation currently “far too high”. Bullard added that he feels the US economy is unlikely to fall into recession in 2022 or 2023. The Fed chair, Jerome Powell, said “it is appropriate to be moving a little more quickly” and suggested that interest rate hikes would be unlikely to cause a recession due to the strong labour market.

A composite PMI survey indicated that business activity this month slowed from the level of growth experienced in March, but remained in healthy territory. The slowdown in growth was driven by the services sector, with manufacturing experiencing an improvement.

China continued to battle with social unrest due to strict lockdown measures. The International Monetary Fund (IMF) cut their 2022 economic growth forecast from 4.8% to 4.4%. The People’s Bank of China (PBOC) acknowledged the difficulties facing the Chinese economy and vowed to keep monetary policy supportive for the foreseeable future. In Hong Kong, social distancing rules were relaxed and authorities eased a travel a ban for foreigners.

The Bank of Japan (BoJ) governor, Haruhiko Kuroda, commented on the recent declines for the Yen, stating that whilst the extreme movements could hurt business plans, overall a weak currency will benefit the Japanese economy. PMI data for April suggested that activity in both the services and manufacturing sectors improved, although business confidence was impacted by rising input costs, concerns regarding the war in Ukraine and potential supply chain issues resulting from lockdown restrictions in China.

Fed chair Jerome Powell stated that a 0.50% interest rate hike is “on the cards” for the central bank’s policy meeting in May.

GBP / EUR – Current 1.1890 Previous 1.2079

The Pound was relatively stable against both the US Dollar and the Euro during most of the week, before experiencing a sharp decline during Friday’s session. Across the week, the Pound lost 1.69% against the Dollar and was 1.56% weaker against the Euro.