Equities Under Pressure As Hawkish Central Bank Rhetoric Ramps Up

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25/04/2022
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Equities Under Pressure As Hawkish Central Bank Rhetoric Ramps Up

Global equity markets were firmly on the back foot last week as hawkish central bank comments on both sides of the Atlantic dented investor sentiment. Speaking at an event hosted by the International Monetary Fund (IMF), Federal Reserve Chairman Jerome Powell flagged that a 50 basis point (bp) rate increase could be appropriate at next month’s policy meeting [1]. Meanwhile in Europe, several members of the European Central Bank’s (ECB) governing council, Joachim Nagel (Bundesbank Governor) and Martins Kazaks (Latvia central bank) both stated a desire for an early end to monetary stimulus and an accelerated path for rate hikes [2]. 

US equities were the hardest hit amongst the major markets, the S&P500 retreating by -2.8% with the communication and technology sectors struggling once again. Netflix in particular faced heavy selling pressure with the shares falling by more than -35.0% on the back of disappointing results. In the Eurozone, the MSCI Europe ex UK index declined by -1.0% whilst across the Channel, the FTSE100 fell by -1.2% with the latter also impacted by weak retail sales data amid declining consumer sentiment. Meanwhile in Japan, the Nikkei 225 was largely flat with the index rising by +0.1% despite concerns relating to the weakness of the Yen.

In the bond markets, sovereign yields continued to creep higher, reflective of the increase in hawkish central bank rhetoric. The US 10-year treasury yield rose by 8bps to 2.91% with the equivalent duration gilt yield in the UK ending the week 7bps higher to 1.96%. On the Continent, the 10-year benchmark yield, which had been negative as recently as the first week of March, increased by a further 11bps to 0.92%.

As for commodities, oil prices fell on demand concerns relating to the ongoing COVID led lockdown in Shanghai. Brent crude declined by -4.7% to $107 a barrel, its lowest level for 2 weeks. Elsewhere, gold pulled back due to further strength in the US Dollar. The precious metal, which typically has an inverse relationship with the Dollar, fell by -2.1% to conclude the week at $1,928 an ounce. [3]

 

Week Ahead

The big data release this week arrives on Thursday in the form of Q1’22 GDP from the US. The economy is expected to have grown by +1.0% during the quarter, a notable slowdown from the +6.9% recorded back in Q4’21. Other US data to keep an eye on includes durable goods orders, new home sales and pending home sales. GDP data is also due from the Eurozone this week (Friday) with modest quarterly growth of +0.3% expected. Friday also sees the latest CPI inflation figure published with the headline index forecast to have increased by 10bps from February’s record 7.5%.

Moving to the UK, it’s a relatively quiet week although its worth keeping an eye on Tuesday’s net Government borrowing figure. The opposite can be said for Japan where unemployment, industrial production, CPI inflation and retail sales are all released throughout the week. The Bank of Japan also hosts its latest policy meeting during the early hours of Thursday morning. As for China, PMI data, both official and private are published on Saturday. [4]

 

[1] Spring meetings, 25.04.22

[2] T. Rowe Price, 25.04.22

[3] Refinitiv, 25/04/2022

[4] Forex Factory, 25.04.22

 

 

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