Market Commentary 3rd June 2022 from Charlie Hancock

The FTSE 100 fell 75 points on Wednesday following concerns ahead of OPEC’s meeting in Vienna on Thursday. However, the meeting did not produce the outcome investors were expecting which saw the FTSE rally more than 1% on Monday Morning. Brent crude remains at a three-month peak above $120 per barrel which favours the heavy composition of oil and mining companies in the FTSE 100.

Economic data from last week showed UK mortgage approvals and net lending to individuals decreased from April to March. The low levels of borrowing damaged investor sentiment in the UK raising concerns on the impact of what may come with higher interest rates and the continued cost of living squeeze.

Inflation rates in the eurozone area increased to 8.1% in May 2022, a new high from the previous record of 7.4%. The higher-than-expected reading is increasing the pressure on the European Central Bank (ECB), creating a greater call for the central bank to start rate hikes sooner. Furthermore, there is continued demand for European governments to provide fiscal support to ease the pressure on businesses and consumers. ECB policymakers will be meeting in Amsterdam this week and economists are waiting to hear whether they will be being rate hikes sooner than anticipated.

US stock indices plummeted on Friday, cutting into the gains made on Thursday, to finish with another weekly loss. The US Department of Labour on Friday released new economic data, showing that the US jobs market remains hot, with high labour participation, adding to inflationary pressures. With continued inflationary pressures and the cost-of-living squeeze, technology companies in the US may continue to face troubled waters as economists fear whether the FED will carry on with rate rises. The technology heavy NASDAQ remains down by over 23% year to date. Tesla experienced a drop of 9.2% on Friday after reports of their chief executive, Elon Musk, telling employees of his “super bad feeling” for the economy and concerns they may have to cut 10% of their workforce. Investor sentiment for technology did not improve when the Bank of America commented “things won’t get better for tech anytime soon.”

Investor sentiment was boosted last week following news that Shanghai lockdown restrictions would be easing and with speculation that the US would raise some of their tariffs on China in an attempt to ease inflationary pressures. Their zero Covid policy will remain in force however, people returning to work and being able to leave their homes was enough to bolster investor sentiment. Increased activity in Asia also contributed to the Brent Crude spot price retaining its high above $120 per barrel as demand for oil and other resources increased following the easing of the lockdown restrictions.

GBP / EUR – Current 1.1691 Previous 1.1769

The Pound fell in value against the US Dollar and the Euro, falling by 0.52% and 0.67% respectively across the week. The Pound weakened across the week at the start of talks for a no confidence vote in UK PM, Boris Johnson.