United States
Markets closed earlier this week due to Good Friday. Major indices finished with mixed signals as major corporate reports for 2022 were published. Small-cap stocks managed to regain ground against the previous week of lost ground and value stocks continuously seemed to outperform growth stocks. The S&P500 index finished off on a lower note as JP Morgan Chase missed its target on wall street estimates. Lower trading volume was experienced during the week as there was a deceleration in earnings growth which hindered sentiments amongst traders.
Reports stated that during the month of March, inflation rose to 8.5%, which was slightly above expectations and reached a new high over a four-decade period. Expectations of a 0.5% rise in core inflation were only met by a 0.3% rise excluding major sectors such as food and energy. Crude oil rallied back to USD 100 per barrel as the Russian president stated that peace talks with Ukraine had reached a deadlock regardless of stocks increasing.
Following a steep move in rates which have increased the cost of various items such as houses and recreational items, this has cited risks towards consumer activity. Further threats over corporate profits have also been realised as there has been an adverse move in the producer prices, which have doubled to 1% in March. Prices have also surged to a record 9.2% over a 12-month period, further supporting the Producer Price Index increase.
The steepening of the US Treasury yield curve continued this week, with short- and intermediate-term rates falling and long-end yields rising. The weaker-than-expected core reading in the March consumer price index (CPI) prompted demand for treasuries, particularly those with shorter maturities. With bonds staging negative returns over the week, due to continuous outflows in various industries, it was noticed that municipals also lagged treasuries as most tax-free bond investors were reluctant to follow suit in Tuesday’s rally within the US Market.
Amid March CPI expectations, corporate bonds experienced some form of weakness during the start of the week. The market was also coupled with mixed periods of weakness in equity markets as high-yield corporate bonds had been experiencing lower than average trading volumes. With the ongoing crisis in eastern Europe, riskier assets have been reporting weakness as inflationary risk seems to linger discouraging risks within the primary markets. The banking loans, however, realised trading activity in the secondary market as investors were trying to capitalise on cheaper high yield bonds over the beginning of the week.
Europe
The ECB (European Central Bank) did not apply its hawkish stance during its policy meeting which contributed to the rise in European shares over the week. With major benchmarks such as the Euro Stoxx 600 finishing on a higher note along with the CAC 40, the indices rose 1.09% and 2.11% respectively. The FTSE100 fell due to energy stocks dropping over an appreciated UK pound over the US dollar.
At its most recent policy meeting, the ECB stated that it would stick to its earlier stance for a gradual withdrawal of stimulus, stating that its asset purchases will finish in the third quarter. Following the meeting, ECB President Christine Lagarde mentioned that policymakers would “maintain optionality, gradualism, and flexibility in our monetary policy action.” She also stated that there is no set timeline for hiking interest rates once the programme is completed.
The UK’s economic recovery is slowing down. GDP slowed to 0.1% in February, contrasting to the 0.8% seen in January. This is attributed to construction and production output slowing down, which further shows the full effects of the Russo-Ukrainian invasion. The UK has also seen its inflation rate rise to a 30-year high of 7% in March compared to 6.2% in February.
japan
Japan’s stock markets realised gains over the four-day week, with the Nikkei 225 index rising and the TOPIX index rising 0.62% on Thursday. The Bank of Japan governor still insisted on a relaxed tone. He emphasised that Japan’s economy will recover despite the surging of commodity prices and a major monetary stimulus in the economy’s post covid recovery.
With the volatile increase in the price of crude oil and other commodities, the producer price index has risen over the past two months 9.7% in February followed by 9.5% in March. CPI has also remained low as the BOJ’S commitment to maintaining a lucrative monetary policy has been suggested by BOJ (Bank of Japan) Governor Haruhiko Kuroda.
Eight out of nine areas throughout Japan amended their economic evaluations downward from January in the Bank of Japan’s Regional Economic Report for April, owing to a resurgence of the coronavirus and supply-side bottlenecks in several sectors. There was also a mention of downward pressure on service use. The Reuters Tankan poll found that Japanese manufacturers’ business optimism improved for the second month in April in terms of economic data. However, rising raw material prices and movements in the foreign exchange market were noted as issues clouding the picture.
China
Shanghai currently has more than 27,000 coronavirus cases, a record high since the virus emerged in Wuhan in 2019. More than 25 million residents have been under lockdown since the 28th of March. Causing delays in supply chains which has led the Chinese market to further go down for the week.
As a rising number of Chinese towns reimposed restrictions to combat the virus, supply chain bottlenecks surfaced in various sectors of China’s manufacturing industry. Among the firms that have halted production are Tesla, Volkswagen, Bosch, and domestic manufacturers. More than 30 Taiwanese enterprises, many of which manufacture electronic components, have also halted operations in eastern China. In reaction to the spreading outbreak, Chinese President Xi Jinping stated that the country’s control and prevention efforts must not be relaxed.
CPI in China accelerated in March against a declining producer price index from February which surpassed forecast. China’s exports rose exceeding expectations of 14.7% however imports also unexpectedly dropped falling short of forecasts.
Despite an increase in credit demand in March, overall credit demand in China remained low, highlighting the difficulty China’s central bank confronts in trying to boost lending, even after dropping its policy rate in January. Last Wednesday, China’s State Council indicated that it would employ monetary policy measures, such as a reduction in the necessary reserve ratio for banks, at “an appropriate time,” which investors viewed as a rate cut in the near term.
The real estate industry and property developers in China defaulted on interest payments, which had a detrimental impact on the week’s performance. Due to the Shanghai shutdown, Zhenro Properties became the latest developer to fail, missing interest payments amounting to USD20.4million on two offshore bonds. The firm expects four more defaults but said that it will make further settlements by the end of May this year.
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In Local Currency |
In Sterling Pound |
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Index |
Last week |
YTD |
Last week |
YTD |
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UK |
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FTSE 100 Index |
-1.16% |
3.92% |
-1.16% |
3.92% |
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US |
|
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S&P 500 Index |
-2.12% |
-7.57% |
-2.39% |
-4.03% |
|
Europe |
|
|
|
|
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DAX |
-1.11% |
-11.08% |
-1.33% |
-11.67% |
|
Euro Stoxx 50 Index |
-0.79% |
-10.58% |
-1.25% |
-11.40% |
|
Asia |
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Nikkei 225 Index |
-0.61% |
-6.84% |
-1.74% |
-11.56% |
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Hang Seng Index |
-2.28% |
-8.33% |
-2.51% |
-5.29% |
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MSCI Emerging Markets Index |
0.71% |
-7.46% |
0.97% |
-5.21% |
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