It’s the start of a new month this week… with dark clouds hanging over global growth. Key monetary policy meetings from the Federal Reserve and Bank of England are unlikely to help that mood.
The war in Ukraine could last for two or more years, whilst inflationary pressures show little sign of moderating. The zero covid policy in China is blamed for a series of lockdowns in China’s major commercial cities which will only delay the un-blocking of these global supply issues.
Review of last week’s key action
FTSE +23 +0.3% DOW 0834 -2.47% S&P -139 -3.27% NASDQ -504 -3.93% DAX -11 -0.31% NIKKEI -257 -0.95$% Hang Seng +450 +2.18%
April was a poor month for equities in the US and to a lesser extent in Europe and Asia. April historically tends to be one of the best months of the year for US equities with average returns of 1.41%. Not so this April as the S&P500 fell by 8.8%, bringing the cumulative loss so far this year to -13.3% – well into correction territory.
The tech focussed NASDAQ had an even worse April concluding with a fall of 4.2% on Friday and with a stunning fall of 13.3% in the month. Results and outlook from the FAANGS highlighted the angst being felt, with Amazon slumping 14% on Friday following underwhelming results. Apple, despite beating consensus quarterly revenues, took the shine of these results by warning or supply chain shortages which resulted in a 3.7% fall by the close Friday.
UK and EU equities were spared some of the steep falls seen in the US, as sharp falls in their respective currencies soften the blow for now.
EURUSD -2.55 -2.36% GBPUSD -4.61 -3.53% USDJPY +1.37 +1.06%
The comments from the Federal Reserve’s Jay Powell continues to reverberate in the currency markets as traders anticipate greater interest rate increases in the US relative to other G10 economies.
Despite having risen sharply this year already, the US Dollar strengthened further, with the Dollar Index hitting a 20- year high at 104 which was last seen in 2002. The timing of the renewed rally in the USD was because of the Bank of Japan’s decision last Thursday to maintain ultra-low interest rates in the belief that the inflationary surge will abate by the year end. The Japanese Yen hit a 20 year low versus the US Dollar following the central bank news.
Gold -35 -1.81% UK OIL +0.79 +0.75% US OIL +2.8 +2.75%
Bitcoin -1,113 -2.8%
USD-based Commodities will be under pressure from the surge in the US Dollar which makes these commodities in local currencies much more expensive. Gold is a classic example where gold bugs would scream from the roof tops about global macro risk and surging inflation – two good reason to buy gold. But it is the US Dollar strength that is Gold’s worse enemy, with the precious metal plunging again to 3-month low. Oil continues to loosely track the fortunes of the equity markets. With rolling lockdowns in China’s major cities and with the corrosive effects of inflation, oil could come under further pressure.
Data / events for the week ahead
A remarkably busy and very important week for the markets, with two key central bank policy meetings and the monthly Non-Farm employment report from the Bureau of Labour.
Japan Public holiday through to Wednesday.
China Public holiday in celebration of labour day - through to Tuesday
US ISM Manufacturing PMI. Holding in there?
Australia Reserve Bank of Australia (RBA) – Time to raise interest rates now. Analysts expect 0.15% increase with further increases at each meeting for the rest of the year.
US ADP employment change. Slowing a little
US ISM Services. The largest sector but analysts still expect activity to continue expanding.
US FOMC meeting and rate decision. The market is unanimous in its view that the Federal Reserve will hike rates by 0.5% to 0.75% – 1.00% banding. Furthermore, analysts expect the Fed to hike rates by another 2% by year end, 2.75% - 3.00% banding. It will be interesting to hear what is said in the press conference about future rate expectations. USD, Equities, Commodities, and bonds all hypersensitive to any surprises.
Opec The OPEC cartel’s monthly price fixing meeting.
UK Monthly policy of Bank of England’s Monetary Policy Committee. Despite the slowdown in retail sales over the past two months, analysts expect the bank to raise rates again to 1% from 0.75%. The bank may also announce the start of Gilt sales from the pile bought through the QE program during the pandemic. GBP and FTSE100 and FTSE250 sensitive to news.
US Non-farm employment change. NFP expected to show a slowdown in new jobs whilst analysts watch closely for any further signs of wage growth.
OK, so that rounds up what’s ahead this week.
For more on the current outlook for the pound sterling in the currency markets following the IMF downgrade, watch my short Monday Market Insights video here.
I hope you have a good week in the markets. Check out the live trading webinar dates on this page – sign up for your free session.