Market Commentary 4th May 2022 from Charlie Hancock

Posted by Telford Mann
Market Commentary 4th May 2022
Equity Indices
UK
The UK’s FTSE 100 was the strongest major index around the globe last week, rising by 0.31%. The index sold off on Monday before recovering across the remainder of the week. Gains in mining and pharmaceutical stocks helped to lift the large-cap index. The mid-cap FTSE 250 recovered some of the ground lost during Monday’s sell off, but finished the week 0.83% lower.

Mining giant Glencore declined by 6% on Monday, with investors seemingly concerned about the potential of an economic slowdown around the globe. The stock rallied in the following days, finishing the week with a gain of 4.43%. Anglo American’s share price followed a similar pattern and finished the week 3.63% higher. Pharmaceutical companies AstraZeneca and GlaxoSmithKline  performed well during the week, with their share prices rising by 3.97% and 3.16% respectively.

Europe
The broad FTSE All World Index – Europe ex UK moved 3.12% lower. Germany’s DAX index was broadly flat across the week, with a decline of 0.31%, whilst France’s CAC 40 fell by 0.72%.

An initial estimate indicated the Eurozone economy grew by 0.2% in the first quarter, which was slightly less than expected and slower than the growth experienced under coronavirus related restrictions during the final quarter of 2021. The Italian economy shrank, whilst Germany bounced back to growth following a 0.3% contraction during the final quarter last year.

Debates amongst European Union member states regarding a Russian oil embargo continued throughout the week. Germany’s climate minister stated that Germany is “very, very close” to eliminating their dependence on Russian oil.

US
US equity indices continued to slide last week, with the S&P 500 declining by 3.27%, the Dow Jones Industrial Average losing 2.47% and the NASDAQ 100 falling by 3.76%.

Investor concerns regarding an economic slowdown appeared to be one of the main drivers of the risk off sentiment. Worries regarding an environment of stagflation (weak economic growth with high inflation) worsened following the release of data showing that the US economy unexpectedly shrank during the first quarter.

A number of US mega-cap corporations released earnings results last week, with the investor reaction that followed contributing to the decline in the headline indices. Amazon.com Inc reported significantly lower than expected profits, with rising costs having an impact during the quarter. The company’s high margin cloud computing business, AWS, reported strong revenue growth, but investors appeared unimpressed, with Amazon’s share price declining by 13.90% across the week.

Google’s parent company, Alphabet, also reported lower than expected profits, with their share price declining by 4.62% across the week.

Asia
 

Asian equity indices declined across the week. China’s Shanghai Composite Index fell by 1.29%, Japan’s Nikkei 225 lost 0.95% and the broad FTSE All World Index – Asia Pacific moved 0.45% lower.

The Japanese Yen continued to fall, with the central bank maintaining an extremely dovish stance at their April policy meeting during the week. The Bank of Japan (BOJ) did acknowledge that inflation is likely to rise in the coming months due to rising energy prices. The Japanese Prime Minister, Fumio Kishida, announced a new fiscal stimulus package worth around 50 billion US Dollars.

Lockdown restrictions in China continued to hurt sentiment, with multinational giants such as Apple, Caterpillar and Microsoft stating that the restrictions will hurt their revenues and worsen supply chain problems around the globe. Chinese President Xi Jinping reportedly told senior officials that economic stability is paramount and that the nation’s economic growth this year must outpace growth in the US. The government appeared to take a softer tone with regard to the Chinese technology sector, with technology and e-commerce related stocks rallying as a result. Alibaba gained 12.41% across the week and JD.com rose by 18.49%.

Bond Yields
UK
UK government bond yields softened last week, with the 10-Year Gilt falling from 1.96% to 1.90%.

Market expectations for an interest rate rise by the Bank of England at their May policy meeting remained stable, with the base rate widely expected to be increased to 1.00%.

Europe
The 10-Year German Bund yield moved slightly lower, falling from 0.97% to 0.94% across the week.

Concerns about weakening economic growth across the Eurozone appeared to contribute to a decline in yields, with investors increasing their exposure to government debt.

US
The 10-Year Treasury yield rose from 2.90% to 2.94% last week.

Yields moved higher despite disappointing economic growth data, with markets expecting the Federal Reserve to proceed with interest rate rises in the coming months. Although the US economy shrank during the first quarter, most economists expect the US to return to growth in the April to June period.

Currency
GBP / USD – Current 1.2574 Previous 1.2839

GBP / EUR – Current 1.1925 Previous 1.1890

The US Dollar continued to rise last week, resulting in the Pound losing 2.06% against the greenback. Investors continued to increase their exposure to the Dollar as concerns around a global economic slowdown worsened. Against the Euro, Sterling rose by 0.29%.

Commodities
Gold
The precious metal failed to benefit from any of the weakness in investor sentiment, with the Gold spot price falling by 1.79% to $1,896.93 per ounce.
Oil
Oil prices declined at the start of the week as traders attempted to price in slowing economic growth, but these concerns faded as the week progressed, with the Brent Crude spot price finishing the week 2.52% higher at $109.34 per barrel.