Week ending 29th April 2022.

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It has been an exhausting week thanks to some savage equity market volatility, as in addition to navigating the war in Ukraine; higher inflation readings; and a struggling Chinese economy due to coronavirus lockdowns, we also had some big US companies reporting earnings.

In summary, the week started with some large falls, for example, here in the UK, the FTSE-100 was down nearly 2.5% at one point, but thankfully recovered as the week wore on after China signalled it was determined to meet its economic targets – which suggests more economic stimulus is on its way.

The Politburo (the decision-making body of the Chinese Communist Party) confirmed that they will unveil further policy support. This support is promising for industries and firms hit by Covid-19. Whilst the detail was light, the message was clear, and strong enough to boost markets.

Xi Jinping, the president of China, wants to both ensure that his zero-Covid policy is a success, but also target 5.5% economic growth this year, ahead of the 20th party congress later in the year. If he secures a third leadership term, this will be unprecedented in recent history!

Elsewhere, today’s Eurozone CPI inflation came in at 7.5%.  While this reading, along with recent readings from other countries, including the US and UK, is screaming for an interest rate increase, we have also seen some disappointing GDP data.

In Europe for example, the Italian economy contracted by 0.2% during the first quarter of 2022, while Spain’s barely grew.  And it is a similar picture in the US where yesterday’s Q1 GDP reading indicated that the economy contracted at an annualised rate of 1.4%, well below expectations of 1.0% growth.

As a consequence, we are now anxiously awaiting this coming week’s monetary policy meetings from both the BoE and the Fed – especially as economists are expecting the Fed to increase interest rates by 0.75%.

While we expect the Fed to increase interest rates, we would favour a tortoise over a hare strategy, with a more gradual increase in interest rates.  Likewise in the UK, market expectations suggest we are in for another 0.25% increase, but given signs that consumer confidence is weakening following this month’s rise in household energy bills and higher taxes, we believe any further increases could be a policy error.

Elsewhere we have Eurozone retail sales; Chinese PMI; US ISM; US factory orders; and US employment data (non-farm payrolls; unemployment rate; participation rate; and average earnings).  Japanese markets are closed for the bulk of the week due to the Golden Week holiday.

Investment Management Team