Weekly Update – 28 March 2022
Global share markets posted modest gains last week and are now over 5% higher than they were on 24th February when Russia invaded Ukraine and some 8.5% higher than their lows in early March. Concerns about rising inflation and rising interest rates were offset by some solid economic data, strong commodity share price performance and a decent bounce from the tech sector. The war in Ukraine is clearly the key focus for markets once again this week, but the US jobs data on Friday will be a key watchpoint too – especially since last week saw new jobless claims numbers come in at their lowest level since 1969!
Last Week
- Stock markets had another decent week, with Japanese shares leading the way
- Energy and Materials were (again!) the best performing equity sectors, which helped drive gains in the UK share market
- Bond markets remained under pressure, with UK 10-year yields rising to their highest level since October 2018
- UK inflation came in at its highest level in 30 years
- Commodity markets posted another week of strong gains
This Week
- The US Payrolls data (Nonfarm) will likely be the key data point, with Bloomberg economists’ expectations targeting 490,000 new jobs in March and a 3.7% unemployment rate.
- China’s business conditions survey data (PMIs) is out on Thursday and Friday, with expectations that it will fall but remain (just) in expansionary territory.
- It’s a quiet week in the UK, with the Q4 GDP reading (final number) due out on Thursday and not much in the way of corporate earnings, with Bellway (first half numbers due out on Tuesday) providing a focus for UK housebuilders.
Last Week’s Highlights
Global stock markets had another decent week, rising by about 1.2%. They have now bounced by about 8.5% since their lows for the year on 8th March and are now “only” down 2.6% for the year-to-date. The Japanese stock market (+4.9%) was the best performer amongst the major regions last week on news that the government is lifting COVID restrictions and its “quasi-state of emergency” in many of the big prefectures (including Tokyo and Osaka). Continental European markets were again the laggard, down by 0.8% on the week, and they remain in correction territory (down 11.1%) for the year-to-date.
On a sector basis, Energy was once again the best performing part of the market, helped in no small part by the 8.8% shift higher in the oil price. Brent crude finished the week trading at $120/barrel, whilst WTI crude closed out the week at $113.9/barrel. The Materials sector performed well (+2.7% on the week) as did Technology, which rose by 1.9% on the week. The tech sector was boosted by the 6.5% rise in Apple, following news of analyst expectations for strong sales of the iPhone 13.
The UK FTSE All Share rose by 0.8% on the week, with the large cap FTSE 100 up by 1.2% and the mid-cap FTSE 250 down by 0.9%. Once again, it was the Energy and Materials sectors (which constitute just under 25% of the index) that drove returns, with Shell and BP both up by 8.7% on the week and Anglo American, Antofagasta, Glencore and Rio Tinto up by 8%, 6.6%, 5.6% and 5.4% respectively. Kingfisher (-10.25%), Ocado (-9.4%) and Taylor Wimpey (-9.2%) were the worst performing shares in the index, with Rolls Royce taking the top spot last week, up by 18.2%.
Bond markets remained under pressure as the prosect of higher interest rates to combat high inflation was very much front and centre. The UK gilt market lost about 1.7% on the week, whilst US Treasuries fell by 1.8%. UK gilts are now down 7.9% for the year-to-date and UK investment grade corporate bonds are little better off: down by 0.9% last week and by 7.4% for the year-to-date. Part of the reason for the sell-off appeared to emanate from hawkish remarks from Federal Reserve Governors, notably Fed Chair Powell, who said that rate rises of larger than 0.25% could well be on the cards in order to control inflation. This caused a re-pricing of rate hikes, with the bond futures markets now pricing in eight further rate hikes in the US this year and six further rate hikes in the UK. The week saw 10-year US Treasury yields close out the week with a yield of 2.47% (highest level since May 2019) and UK 10-year gilt yields close out the week with a yield of 1.695% (highest level since October 2018).
Economic data was generally quite strong last week (another reason that rate hikes were more aggressively priced in), with key business survey data (S&P Global Composite PMIs) still showing to be in “expansionary” territory and actually better than expected in the US economy (by some distance).
Inflation was the most keenly watched data point in the UK last week, with CPI coming in at 6.2% (a 30-year high) and RPI coming in at 8.2%. Business survey data (S&P Global Composite PMIs) was pretty strong, although retail sales did show some signs of a weakening appetite from the consumer, falling for the month of February after one adjusted for the effect of fuel costs.
Commodity markets had another strong week, with the Bloomberg Commodity index rising by 5.2% on the week. This takes its gains for the year to 34.5% in GBP terms. Most of the gains last week were driven by the energy complex, but there were also strong moves from agricultural commodities as well as industrial metals.
Asset Returns
Equities & Oil: returns are all in base currency, save for Global and Emerging which are in GBP. Bond returns are all shown in GBP. Gold in GBP. Source Bloomberg.
UK inflation (CPI) came in at 6.2% last week – its highest level in 30 years!
