US Equities Retreat For Fourth Straight Week As Economy Contracts During Q1

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03/05/2022
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US Equities Retreat For Fourth Straight Week As Economy Contracts During Q1

US equities fell further into the red last week as mixed company results coupled with a surprise first quarter economic contraction weighed on investor sentiment. The S&P500 declined by -3.3%, pushing it further into correction territory with index heavyweights Amazon and Alphabet both posting weak earnings. Even Apple which had reported record quarterly revenues struggled to maintain any real positive momentum due to investor concerns regarding its cautious outlook[1]. Meanwhile, economic data released on Thursday revealed that the US economy shrank by -1.4% in Q1’22 against expectations of modest growth [2]. This was largely the result of falling inventory investment and a record trade deficit, consumer spending and business investment remaining steady for the time being.

It was a largely disappointing week for equity markets regardless of location with key European and Asian indices also recording weekly losses. On the Continent, the MSCI Europe ex UK index declined by -0.8% as the usual suspects of inflation concerns and expectations of tighter monetary policy hit risk appetite. In Japan, the Nikkei 225 fell by -1.0% after the Bank of Japan raised its own inflation outlook and downgraded economic growth expectations whilst across the East China Sea, the Shanghai Composite posted a weekly loss of -1.3%. One market to buck the negative trend was the UK where the FTSE100 rose by +0.3%.

Moving to the bond markets, main sovereign yields inched lower on the back of increased demand for high quality government bonds on those concerns relating to a weaker economic outlook. The 10-year US Treasury yield and its Eurozone benchmark counterpart both fell by 2 basis points (bps), the former to 2.89% and the latter to 0.90%. The UK gilt equivalent declined by 6bps to conclude the week at 1.91%.

Concluding with commodities, copper prices retreated on demand concerns relating to China as it continues implement strict lockdown measures to combat rising COVID-19 cases. The metal fell back below the $10,000 threshold after a weekly decline of -3.4% left it at $9,771 a tonne. Elsewhere, Brent crude added +1.1% to reach $108 a barrel whilst gold fell by -1.0% to $1,908 an ounce. [3]

 

Week Ahead

All eyes will be on the US Federal Reserve this week as it hosts its latest monetary policy meeting with expectations pointing towards another interest rate hike amid surging inflation. In terms of US data, Friday’s labour market report is amongst the standout datasets released this week with headline unemployment expected to have declined modestly last month. PMI equivalents from the Institute for Supply Management are also worth monitoring.

In the UK, the Bank of England’s Monetary Policy Committee are also meeting and like their American counterparts, are expected to raise rates once again. The Central Bank also publishes its latest consumer borrowing statistics on Wednesday which covers various datapoints including mortgage approvals and credit card lending. Moving to the Eurozone, final PMI’s relating to April and updated unemployment are the headline figures due whilst in China, the Caixin Services PMI is the only data of note due. There are no major macro numbers due from Japan on this occasion. [4]

 

 

[1] Troweprice, 03/05/2022

[2] Forex Factory, 03/05/2022

[3] Refinitiv, 03/05/2022

[4] Forex Factory, 03/05/2022

 

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