Equity Markets Mixed As Inflation Rises Once Again

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19/04/2022
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Equity Markets Mixed As Inflation Rises Once Again

Inflationary pressures continued to accelerate last month as surging energy costs continued to bite. In the US, headline CPI reached 8.5%[1], its highest level since 1981 with the equivalent index in the UK hitting a three decade high of 7.0%[2]. Fears of the impact on corporate earnings continued to weigh on investor sentiment with central banks on both sides of the Atlantic expected to raise interest rates once again at their next policy meetings. Subsequently, sovereign yields continued to inch higher last week with 10-year gilts in the UK and equivalent duration treasuries in the US rising by 14 basis points (bps) and 11bps to 1.89% and 2.83% respectively.

Moving to equity markets, the S&P500 ended the holiday shortened week -2.1% lower with the technology sector remaining under pressure. In the UK, the FTSE100 retreated by -0.7% as concerns of stagflation, a situation where inflation remains stubborn in a low growth or contractionary environment, rose. On the Continent, the German DAX fell by -0.8% whilst the French CAC 40 rose by +0.6%. Meanwhile in Japan, the Nikkei 225 added +0.4% after Bank of Japan Governor Haruhiko Kuroda reiterated the Bank’s commitment to significant monetary support[3].

Elsewhere, oil prices rallied having declined during the previous two weeks. Brent Crude jumped by +8.7% to $111.70 a barrel with the European Union considering limiting its imports from Russia as the conflict in Ukraine rumbles on. Natural gas was also on the move with prices in the US surging to their highest level for 14 years. Gold also concluded the week in positive territory, the precious metal rising by +1.3% to $1,969 an ounce despite strength in the US Dollar. One commodity to see little change was copper which fell by a modest -0.1% to $10,298 a tonne.[4]

Week Ahead

Retail sales and flash Purchasing Manager Indices (PMI’s) are the standout figures due from the UK this week with growth expected to have moderated during the first three weeks of April. In the US, the housing sector comes back into the focus with building permits and housing starts both published on Tuesday. The sector has been hindered by rising raw material costs and supply shortages whilst the recent surge in mortgage rates has added another headwind. Flash PMI’s are also due from the Eurozone this week whilst the final revision of March’s CPI data is expected to confirm a record 7.5% level . A raft of key Chinese data was published late on Sunday evening, thew most important of which was Q1’22 GDP which exceeded expectations with an annual growth rate of +4.8%. There are no major figures due from Japan on this occasion.[5]

 

[1] U.S Bureau of labor statistics, 19/04/2022

[2] Office for National statistics, 19/04/2022 

[3] T.RowePrice, 19/04/2022

[4] Refinitiv, 19/04/2022

[5] Forex Factory, 19/04/2022

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