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Archinomics Monthly - April 2022

22 days ago

the
MARKETS

Equities

Global equities retreated over April, led by a steep fall in US stocks. The S&P 500 Index dropped 8.8%, its steepest monthly fall since the start of the pandemic, while the tech-heavy Nasdaq Index plunged 13.3%, its biggest monthly decline since the 2008 financial crisis, as fears of higher interest rates hit growth stocks. Elsewhere, European equities held up relatively well, helped by a larger exposure to defensive stocks, such as consumer staples and utility companies, with commodity-related sectors also proving resilient. Chinese equities slumped but recovered some ground towards month-end after the authorities promised further support.

Bonds

Bonds sold off sharply as central banks became more hawkish. The yield on the 10 year US Treasury bond neared 3.0%, its highest level since late 2018, while the 10 year German Bund yield came within striking distance of 1.0% for the first time since mid 2015. Corporate bond returns were also negative, with US corporate debt lagging Treasuries while European corporate bonds held up better than sovereign debt. 

Currencies

The US dollar rallied strongly amid growing expectations the Fed would accelerate the pace at which it raised interest rates. The euro fell to a five year low against the US dollar while the Japanese yen fell to a twenty year low, reflecting the Bank of Japan’s continued dovish stance. The Chinese renminbi also dropped sharply, amid growing concerns over the country’s growth outlook.

Commodities

Oil prices rallied modestly over the month, as investors weighed the EU’s potential ban on Russian oil against a weakening demand backdrop. Brent Crude posted a monthly gain of 1.3% to close at $109.3 a barrel. The price of gold eased 2.1% to $1,896.30 a troy ounce.  

Market Volatility

Market volatility

Volatility held relatively steady for much of April, but picked up sharply towards the month end. The Vix index rose 62.4% over the month to close at 33.4.

Responsible investing

The EU approved the Digital Services Act, a major piece of legislation aimed at curbing the power of Big Tech. The legislation sets out rules on how companies should keep users safe on the internet, and should force technology companies to police content online more closely.

IN
BRIEF

Central banks became more hawkish. The US Federal Reserve (Fed) indicated that it would likely raise rates by 50 basis points in May while the European Central Bank indicated that its first rate increase in a decade was possible from July onwards.


In China, the lockdown in Shanghai entered a second month and fears grew that Beijing could also be placed into lockdown. China’s zero-Covid policy could mean further supply chain disruption and might threaten the country’s 5.5% growth target for 2022.


Russia halted gas supplies to Poland and Bulgaria, carrying through on its threat to stop energy supplies to “unfriendly” countries, unless they paid in roubles. The EU warned European gas distributors that they would be in breach of sanctions against Moscow if they gave into the Kremlin’s demands.


What?

on the
RADAR

The Fed is expected to raise rates by 50 basis points in early May; this would be the first increase of that size since 2000. The Bank of England is also expected to hike rates in May, but faces a careful balancing act as households face a cost-of-living crisis.


The EU appears to be getting closer to banning Russian oil. Germany's economic minister said the country would be able to weather a Russian oil ban by the end of 2022, as he appeared to back tougher sanctions. However, Hungary said it would block a deal unless it could be guaranteed supplies from elsewhere.


Stagflation risks are rising as a commodity price shock further exacerbates inflationary pressures and dampens the growth outlook. Europe is potentially most at risk from stagflation given the dependency of some EU countries on Russia as a supplier.

 

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