United States
A positive month for indexes but down for the quarter
The major indexes closed the week with mixed results, with the S&P 500 Index finishing the month with its best month since December but the worst quarter since early 2020. As investors braced for a slowdown in growth, cyclically sensitive companies underperformed, with the financial services and industrials sectors of the S&P 500 among the losers. Higher interest rate forecasts weighed on the technology sector, but consumer staples and utilities, which are traditionally defensive, outperformed.
Ukraine dominates sentiment
Stock prices fluctuated over the week in apparent response to the evolving situation in the war in Ukraine. The week started on a strong note, which attributed to reports that Russia was prepared to allow Ukraine to join the European Union in return for a pledge to stay out of NATO as well as progress in ceasefire talks. The S&P 500’s four-day winning streak was broken on Wednesday after a Russian official said that talks with Ukraine yielded no breakthrough and that Russia was regrouping forces in a push to complete the takeover of the eastern Donbas region. The mood soured further on Thursday, as Ukrainian President Volodymyr Zelenskyy said that Ukrainian forces are preparing for new Russian attacks. After rising briefly on the renewed tensions, oil prices resumed their decline following the Biden administration’s announcement of an extended-release from the nation’s Strategic Petroleum Reserve to combat inflationary pressures.
The bond market suffered its worst quarter since 1980
The yield on the benchmark 10-year U.S. Treasury note decreased somewhat this week, but the Bloomberg U.S. Aggregate Bond Index finished the quarter with its worst quarter since late 1980, and the third-worst quarter since the index’s inception. The index’s performance in March was the weakest since July 2003. Parts of the Treasury yield curve inverted this week, but traders cautioned that the link between inversion and impending recession may not be as strong as it appears, as investors appeared to favour longer-dated Treasuries in response to signs that the Federal Reserve may raise short-term rates by 50 basis points in May.
Europe
In a tumultuous week of trading, European stocks gained ground, overcoming fears about the macroeconomic outlook amid high inflation and Russia’s military invasion of Ukraine. The pan-European STOXX Europe 600 Index rose 1.06 percent in local currency. The DAX Index in Germany gained 0.98 percent, the CAC 40 Index in France gained 1.99 percent, and the FTSE MIB Index in Italy gained 2.46 percent. The FTSE 100 Index in the United Kingdom increased by 0.73 percent.
Over the week, core eurozone bond yields fluctuated, but they concluded the week relatively even. Inflation data that was higher than predicted raised expectations for more interest rate hikes, driving yields higher. As optimism about Russian-Ukrainian peace talks stalled, the move was reversed, and European Central Bank (ECB) chief economist Philip Lane stated that the ECB should be prepared to change policy if macroeconomic conditions deteriorate sufficiently. Government bond yields on the periphery of the eurozone closely matched those in the core. UK gilt yields have fallen in tandem with US Treasury yields, which have fallen due to geopolitical tensions and recession fears.
Russia threatens to halt natural gas supplies if not paid in Rubles
On April 1, President Vladimir Putin signed a directive requiring foreign customers to pay for Russian natural gas in Rubles, sparking fears about possible supply disruptions in Europe and the potential economic consequences. The directive was unanimously rejected by the G-7 countries. Germany has stated that it will continue to pay for Russian energy in euros and has put in place an emergency plan for natural gas rationing in the event that deliveries are halted or reduced.
Eurozone inflation accelerates
According to preliminary estimates, the eurozone’s annual inflation rate hit a new high of 7.5 percent in March, up from 5.9 percent in February. The increase was primarily due to an increase in energy prices. As the economy continued to recover from the lifting of coronavirus lockdowns, the jobless rate fell to a new low of 6.8 percent in February.
As fighting in Ukraine persisted, ECB President Christine Lagarde, Vice President Luis de Guindos, and Chief Economist Philip Lane expressed concern about the macroeconomic outlook. At a conference in Cyprus, Lagarde repeated that the eurozone would experience weaker growth and higher inflation in the medium term, but she cautioned that “the longer the war lasts, the bigger the economic losses would be, and the greater the probability we will end up in more bad situations.” In a bad scenario involving tougher sanctions against Russia, the ECB forecasts 2.5 percent growth in 2022, compared to 3.7 percent in its base case.
UK Q4 gross domestic product revised up but business sentiment plunges
In the last quarter of 2021, the UK economy grew more than originally estimated, with the rate of increase revised up to 1.3 percent from the prior estimate of 1%. However, coronavirus-related activity in the health sector accounted for the majority of the rise. Meanwhile, a poll conducted by the Institute of Directors revealed that company sentiment fell in March as a result of worsening economic conditions.
china
For the week, Chinese stocks rose as investors expected Beijing to intervene to bolster the country’s economy and markets. According to Reuters, the broad, capitalization-weighted Shanghai Composite Index increased by 2.2 percent, while the CSI 300 Index, which monitors the top listed companies in Shanghai and Shenzhen, increased by 2.4 percent.
Concerns about dual-listed Chinese companies being removed from U.S. exchanges continued to weigh on the technology sector. The Securities and Exchange Commission added five Chinese internet companies to its expanding list of companies facing delisting due to China’s unwillingness to allow US regulators to inspect their audits on Wednesday.
Because of the virus’s recurrence and the government’s zero-tolerance stance on outbreaks, many economists have lowered their growth projections for China. COVID-19 has resurfaced in Shanghai, with over 32,000 cases reported in the last month, the largest outbreak in China since it originally debuted in Wuhan.
The People’s Bank of China released the minutes of its first-quarter Monetary Policy Committee meeting, which underlined rising internal and international uncertainty. Conditions necessitated strengthening of policy implementation, according to the central bank, which some analysts took as a sign of more credit easing while keeping monetary conditions constant.
About Author
