Market Monitor - 6 May 2022
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Market Monitor – 6 May 2022

Rising interest rates and the threat of a new global recession have caused renewed turbulence on stock markets around the world this week, with high levels of uncertainty and anxiety among investors leading to major swings.

On Wednesday, for example, markets in the United States posted their strongest gains in almost two years, only to see those advances evaporate 24 hours later

The root of this volatility is the interplay between inflation, economic growth and monetary policy. A number of central banks – including the Federal Reserve in the US and the Bank of England – have raised rates this week as expected in their attempts to bring spiralling price increases under control.

After the dust had settled, the Dow Jones Industrial Average ended trading on Thursday 0.1% up for the week so far, with the S&P 500 finishing 0.4% ahead. Both indices had surged by over 3% during Wednesday’s rally, only to see those gains instantly wiped out as a sense of doom returned to the markets, and yields on some government bonds – an indicator of future interest rate expectations – rose to their highest level in almost four years.

The US

After the dust had settled, the Dow Jones Industrial Average ended trading on Thursday 0.1% up for the week so far, with the S&P 500 finishing 0.4% ahead. Both indices had surged by over 3% during Wednesday’s rally, only to see those gains instantly wiped out as a sense of doom returned to the markets, and yields on some government bonds – an indicator of future interest rate expectations – rose to their highest level in almost four years.

The UK & Europe

In the UK, the FTSE 100 closed on Thursday 0.5% down for the week, following the Bank of England’s latest 0.25% base rate increase. Investors in Britain are particularly concerned about stagflation – a period of high price increases coupled with low growth. BoE governor Andrew Bailey said that the UK’s growth prospects were deteriorating due to inflation and the interest rate policy needed to control it . Sterling fell to its lowest level since mid-2020 on the news.

London-listed energy companies Shell and BP both posted eye-catching first-quarter results thanks to the high price of oil. News of the profits has increased pressure on the government to impose a one-off windfall tax on energy firms in order to help households deal with rising bills.

Meanwhile, new data highlighted the difficulties British manufacturers are facing in expanding their businesses as a result of slowing global demand, international supply-chain problems and the red tape that has been introduced since Brexit.

In Frankfurt, the DAX index ended Thursday’s session down 1.4% for the week, while France’s CAC 40 lost 2.5%. Investors are concerned that the European Commission’s plan to phase out imports of Russian oil will drive costs higher and make the European Union’s manufacturing sector less competitive.

Sanctions introduced after the invasion of Ukraine mean that German exports to Russia have fallen to their lowest level in almost 20 years.

 

Asia

In Asia, the Hang Seng index in Hong Kong dipped 1.4% as China continues to tackle a number of Omicron outbreaks. On Tuesday, credit rating agency Fitch downgraded its growth forecasts for the Chinese economy citing disruption linked to lockdowns in Shanghai and other major cities.

Japan’s Nikkei 225 index of leading shares, meanwhile, fell 0.1% this week, with rises in the value of the dollar against the yen helping to boost companies’ international earnings and avoid the steep share-price losses seen elsewhere.

April 1
April 7
Change (%)
FTSE 100
7544.6
7503.3
-0.5
FTSE All-share
4185.1
4145.6
-0.9
S&P 500
4131.9
4146.9
0.4
Dow Jones
32977.2
32998.0
0.1
DAX
14097.9
13902.5
-1.4
CAC 40
6533.8
6368.4
-2.5
ACWI
653.7
648.0
-0.9
Hong Kong Hang Seng
21089.4
20793.4
-1.4
Nikkei 225
26847.9
26818.5
-0.1

Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, as at 7 April 2022.

6 May 2022
Mark King
Mark King
Head of Investment Content
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Market Monitor – 6 May 2022

1 Manufacturers’ Goods Index, February, United States Census Bureau, 4/4/2022.
2 Oil giant Shell to take £3.8bn hit by leaving Russia, bbc.co.uk, 7/4/2022.

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