May 20, 2022 3:56:17 PM
Weekly Market Wrap 20/05/2022
US equities suffered the worst day in almost two years this week upon fears around the outlook for the global economy. China’s zero-covid policy has cast doubts over the growth outlook for the country after data on Monday showed that Chinese factory and retail activity fell sharply in April after major cities in the country were placed in various stages of lockdown. The EU has reduced its growth forecasts for both 2022 and 2023 and raised its inflation estimates as the Russian invasion of Ukraine takes its toll of the European economy. UK inflation hit a 40–year high this week, whilst consumer confidence hit an all–time low as the UK’s cost of living crisis shows no signs of slowing. UK unemployment fell to its lowest level in almost 50 years this week, reaching 3.7% and providing some much-needed reassurance to the economy. Fed Chair Jerome Powell reinforced his hawkish stance on Tuesday, telling markets that the Federal Reserve was willing to raise rates as high as needed in order to fight inflation.
The S&P 500 is likely to end the week down 2.82% at 3,911 whilst the NASDAQ is down 3.19% at 11,422. US markets sold off heavily on Wednesday, with the heaviest daily falls seen since June 2020 as the combination of inflation, Chinese zero-covid policy, interest rates as well as the ongoing conflict between Russia and Ukraine concern investors. Federal Reserve Chairman Jerome Powell stated that the Fed needed to see inflation “coming down in a clear and convincing way” and the Fed would take action as required to calm inflation. Markets took concern over these comments as faster interest rate increases could negatively impact US economic growth.
The UK market was flat this week. UK inflation hit 9%, the highest level seen since 1982 as higher energy and fuel prices contributed to the accelerating cost of living for UK consumers. A recent consumer optimism survey in the UK has reached the lowest ever level recorded since the survey began in 1974, with results weaker than those seen during the financial crisis or Covid-19. However, UK retail sales data on Friday offered a glimmer of hope within the bleak overall picture with a surprise increase of 1.4%; a 0.2% fall had been predicted by economists.
The Euro Stoxx 50 fell 0.74% at 3,675, the DAX closed flat at 14,028 whilst the CAC 40 was down 0.80% to 6,311. On Monday the European Commission slashed its growth forecasts for 2022 to 2.7% from 4% and increased its inflation estimate to over 6% for 2022. The ongoing conflict between Russia and Ukraine and the energy crisis and supply chain disruption that followed have caused the European economy which was already recovering from the effects of Covid-19 to suffer.
Yields on the US 10-Year Treasury fell this week by 0.02% to 2.82%. The Fed is expected to raise rates by 0.50% in both the June and July meetings, and consensus now expects the Fed’s funds rate to be at 2.50-2.75% by the end of 2022.
Brent Crude rose by 0.77% to $112 per barrel this week. Oil remains at high levels despite an expected slowdown in Chinese demand as the possibility of a European Commission ban on imports grows.
Gold prices rose this week by 0.82% to $1,838, as increased uncertainty around the global economy has increased the attractiveness of the safe haven asset.
The Week Ahead
Monday – BoE Governor Speech
Tuesday – European & UK PMIs
Wednesday – FOMC Minutes
Thursday – US GDP, US Initial Jobless Claims
Friday – US Consumer Sentiment
*Price changes as of last week’s close unless stated otherwise.