US Equities Punished Again As Recession Fears Rise


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US Equities Punished Again As Recession Fears Rise

US equities continued to fall last week as concerns regarding the economic outlook retained its firm grip over investor sentiment. With the Federal Reserve committed to hiking rates quickly amid spiking inflation, expectations of a soft landing for the US economy have deteriorated. Whilst last week’s inflation data did indeed show a fall in the headline CPI rate [1], the decline was less than expected and core inflation which excludes food and fuel from the calculation remained sticky. The S&P500 fell by -2.4%, the 6th consecutive week that it has declined.

Elsewhere, stock market returns were mixed with volatility remaining a persistent feature. European bourses rebounded sharply as the trading week drew to a close, the DAX in Germany and French CAC40 ultimately closing +2.6% and +1.7% respectively. UK markets also closed the week higher, the FTSE100 adding +0.4% with the mid-cap FTSE250 gaining by +0.5%. Meanwhile in Japan, the Nikkei 225 declined by -2.1%.

Given those fears relating to the economic picture, sovereign yields retreated as investors adopted a more risk off appetite. In the UK, gilt yields declined across the curve with moves at the short ended more pronounced. The 10-year gilt yield fell by 26 basis points (bps) to 1.74% whilst in the US, the equivalent treasury yield fell by 18bps to 2.94%. One country to buck the trend was Japan where its 10-year yield was unchanged at 0.24% after the Central Bank reiterated its commitment to an aggressive monetary policy.

In the commodity markets, gold slipped to its lowest for nearly three months with the strength of the US Dollar continuing to weigh on demand for the metal. It declined by -3.8% to close out the week at $1,815 an ounce. Copper also continued its recent retreat as a result of economic slowdown fears, this time by a further -2.4% to $9,185 a tonne. Oil meanwhile was little changed at $112 a barrel, a modest decline of -0.8% over the previous week.

Week Ahead

Inflation data in the UK is by far the standout data release this week with the headline index expected to have increased again, this time by more than two percentage points to 9.1%. Unemployment, which is forecast to have held steady at 3.8% last month and retail sales are also due this week. Moving to the US, retail sales are the standout figure whilst from the housing sector, we get the latest building permits and housing starts data.

On the Continent, revised Q1’22 GDP data is expected to be unchanged from the previously calculated +0.2% whilst other numbers from the region to keep an eye on include final CPI for April and latest economic forecasts from the EU. In Asia, updated GDP is also due in Japan alongside revised industrial production. It’s a particularly busy week for key Chinese data with retail sales, fixed asset investment, industrial production and unemployment already published during the early hours of Monday morning. [2]


[1], 16/05/2022

[2] Refinitiv, 16/05/2022

[3] Forex Factory, 16/05/2022


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