Weekly Market Wrap 13/05/2022

Although US CPI fell, the data still came in ahead of estimates keeping pressure on central banks to raise rates aggressively despite the recessionary risks. UK GDP declined in March, sparking fears of stagflation in the UK with inflation predicted to peak at 10% later this year. The European Commission’s latest wave of sanctions on Russia may have hit a bump in the road, whilst the UK and the EU clash over Northern Ireland trading protocols. Crypto markets suffered heavy falls after Terra, a so-called “stablecoin” which is meant to be protected from the dramatic volatility that can be seen in the Crypto markets, fell over 90%.  

US Markets 

The S&P 500 is likely to end the week down 2.52% at 4,018 whilst the NASDAQ is down 2.93% at 12,321. US markets sold off heavily on Wednesday after CPI data came in at 8.3%, ahead of the 8.1% estimate. Investors feared that the lack of progress seen from the Federal Reserve’s efforts to fight inflation could lead to larger rate hikes in future Fed meetings, which would have the potential to slow US economic growth. Chairman Jerome Powell calmed some nerves by repeating his earlier comment that a 0.75% rate increase isn’t something that the Fed is “actively considering”. Elon Musk’s deal to buy Twitter was put “on hold” over concerns about the number of spam accounts present on the platform. Twitter fell 20% in pre-market trading after the news was released. 

UK Market   

The UK market fell slightly this week. Data released on Thursday from the Office for National Statistics showed that although GDP for Q1 in the UK grew by 0.8%, UK GDP declined in March by 0.1%. Data from February was also revised downwards from 0.1% growth to show no movement. The increasing cost of living that is affecting UK households fed through to a decrease in retail and hospitality sales, as consumers had to reduce their spending. With inflation forecast to peak at more than 10% in the UK, stagflation fears are becoming more prominent. 

European Markets   

The Euro Stoxx 50 gained 1.82% at 3,695, the DAX increased 2.42% to 14,003 whilst the CAC 40 was up 1.44% to 6,347. European markets rallied on Friday after a mixed week which saw losses earlier in the week as investors grew concerned with the risk of a recession, brought on by excessive interest rate action from central banks. The European Commission’s proposed ban on imports of Russian oil, which requires agreement from all 27 members, has been a cause for concern for a number of countries within the EU. Hungary has requested that it be exempt from the ban due to the fact it receives oil via a pipeline from Russia rather than by shipments, which would be very difficult to replace. Hungary have requested a transition period of 5 years to slowly reduce its use of Russian oil. 

Fixed Income  

Yields on the US 10-Year Treasury have fallen below the psychologically important 3% to 2.91%, despite expectations that the Fed’s pace of tapering could increase after a higher than expected US CPI number. Investors did look to bonds for safety during the equity sell off, which pushed yields slightly lower. 

Commodities 

Brent Crude fell by 1.57% to $110 per barrel this week. OPEC cut the 2022 oil demand forecast, stating that China’s lockdowns driven by the strict zero-covid policy, and the Russian invasion of Ukraine would negatively impact global demand.  

Gold prices fell this week by 2.10% to $1,815, as the potential for the Fed to move in an even more hawkish fashion after US inflation data and a stronger US dollar continued to make the non-income yielding Gold look less attractive.  

The Week Ahead  

Monday – European Economic Growth Forecasts 

Tuesday – US Retail Sales, European GDP 

Wednesday – UK CPI 

Thursday – UK Consumer Confidence, US Initial Jobless Claims 

Friday – China Interest Rate Decision, UK Retail Sales  

*Price changes as of last week’s close unless stated otherwise.