Market Commentary 14th June 2022 from Charlie Hancock

Posted by Telford Mann

Market Commentary 14th June 2022

Equity Indices

Investor sentiment was poor worldwide last week. The FTSE 100 saw a decline of 3.82% over the week whilst the more domestically focused FTSE 250 fell by 4.06%.

A report by the Office for National Statistics (ONS) announced that production and manufacturing had fallen during the month of May, with business continuing to report pressure from price increases and supply chain shortages. The S&P Purchasing Managers’ Index (PMI) covering manufacturing in the UK fell to 54.6 in May of 2022 from 55.8 in April, pointing to the slowest growth in factory activity since January last year.

Higher than anticipated US inflation figures announced on Friday impacted the UK equity markets and resulted in concerns regarding the possible response from both the US Federal Reserve and the Bank of England (BoE). The Bank of England are due to meet this week to vote on interest rate rises.

Europe

The major European indices experienced increased volatility over the past week. Germany’s DAX index fell by 4.83%, whilst the FTSE All World Index – Europe ex UK slumped by 6.62% over the week.

Christine Lagarde, the European Central Bank (ECB) president, announced plans to lift interest rates in an attempt to fight surging inflation. This will bring their policies more in line with that of the US Federal Reserve and Bank of England following criticism that the ECB have not been doing enough. This will be the first increase in interest rates by the ECB in more than a decade with a current interest rate of -0.50%.

The US stock markets also suffered with news regarding inflation weighing down on their major indices over the week. The S&P 500 fell by 5.05% whilst the NASDAQ 100 fell by 5.70% over the week. The Dow Jones Industrial Average started the week off well but also suffered a similar fate dropping 4.58% by the end of the week.

The US consumer prices index data released on Friday was a rate of 8.60%, its highest since December 1981. The Federal Reserve are due to announce a rate rise this week and a further rise in July, causing US equities to take a hit on Friday following the inflation figures.

The tech-heavy NASDAQ usually reacts negatively to interest rate rises and saw its value fall by 3.5% on Friday alone, marking its biggest loss since January 2022. Amazon saw its share price decline by 10.38%, with PayPal Holdings falling by 6.30%.

Asia

Asian equities acted more robustly, with China’s Shanghai Composite Index gaining 1.50% and Japan’s Nikkei 225 rising by 0.23%. The broader FTSE All World – Asia Pacific declined by 1.77%.

Economic data showed China’s exports rose by 16.9% year on year, exceeding market forecasts of 8%. This announcement came after an ease in lockdown restrictions with Shanghai coming out of two-month lockdown, freeing up around 25 million people and allowing factory production and logistics to resume. Despite this, further lockdown measures and mass testing were announced on Thursday for around 2 million people in Shanghai, providing a reminder that the ‘Zero Covid’ policy is still very much the focus.

Bond Yields

UK Government bond yields rose last week, with the 10-Year Gilt climbing from 2.10% to 2.45%. Yields are continuing to rise following Bank of England announcements regarding further rate rises in the coming months.

Europe

The 10-Year German Bund yield rose from 1.21% to 1.52% across the week.

The European Central Bank has announced that they will be raising interest rates for the first time in over a decade. It is expected that rates will be in positive territory by September.

The 10 Year Treasury yield followed the trend of increased yields, moving from 2.94% to 3.16% across the week as investors continue to anticipate further rate rises and inflation over the year.

Currency

GBP / USD – Current 1.2313 Previous 1.2566

GBP / EUR – Current 1.1707 Previous 1.1691

The Pound has fallen against the US Dollar over the last week, with concerns regarding stagflation worrying investors with both increased inflation and a lack of growth being reported within the UK.

The Euro weakened towards the end of the week following comments from the ECB that they intend on increasing interest rates and reducing borrowing following instability within Italy and Greece.

Commodities

Gold

The Gold spot price fell marginally over the week, reducing from $1,854.16 to $1,844.44 per ounce. Continued speculation and expectations for further US interest rate rises likely led to reduced demand given the lack of a yield whilst interest rates rise.

Oil

Oil demand showed no signs of falling over the past week with the Brent Crude spot price rising 1.05%, ending the week at $122.27 per barrel.