Market Overview – 27/04/2022

Growing concerns surrounding increasingly aggressive central bank tightening weighed on market sentiment last week, with global stock markets drifting lower and yields continuing to push higher. Comments from Fed Chair Jerome Powell extolling the virtues of “front-loading” rate rises have been attributed by some to causing the moves, but in effect it was more likely a continuation of the prevailing theme of recent months.

A 50bp hike from the Federal Reserve is now largely priced-in for its meeting early next month and the Bank of England is expected to deliver a 25bp hike the day after, a move which would be a third 25bp hike in just over three months. This combination of tighter monetary policy and slowing growth expectations has been reflected in a further flattening of yield curves. China’s zero-Covid policy is exacerbating both these factors, accentuating pandemic-related supply chain issues and adding to inflationary pressures while simultaneously weighing on global growth. Dozens of cities in China are now in full or partial lockdown, most notably Shanghai, and a mass testing order in Beijing has raised fears the capital is destined to join them.

Market-based measures of inflation expectations have hit new highs with the US 10-year breakeven inflation rate rising to a 20-year peak. US earnings season rolls on and overall, corporate updates have been fairly strong with solid top- and bottom-line figures. That said, comments alluding to rising cost pressures have clearly increased and references to the adverse impact of the Chinese lockdown are starting to show up. Netflix was in the headlines for the wrong reasons last week after its stock tumbled almost 40% following the announcement of a drop in subscriber numbers for the quarter, ending a decade-long run of subscriber growth.

Economic data released last week was fairly solid on the whole though the latest UK figures pointed to some weakness, with a consumer confidence reading falling to its lowest level since 2008. UK retail sales were also soft, unlike the US equivalent the week before, falling 1.4% month-on-month in March and far more than the 0.3% consensus forecast. This weighed on sterling and sent the currency to its lowest level since 2020. Gauges of economic activity from Europe were a little better than expected, with the flash purchasing managers index for the area coming in better than forecast – for both services and manufacturing.

Emmanuel Macron has become the first French president to be re-elected in 20 years, comfortably beating far-right rival Marine Le Pen after gaining 58.5% of the vote. The victory is something of a relief to investors and to European and NATO allies, though the market impact has been minimal as it was widely expected. Unfortunately, the conflict in Ukraine shows little sign of ending anytime soon with Russia refocusing its attention on the Donbas region after attempts to take the capital Kyiv came up short.

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