Market Update April Monday 18th 2022

Global Markets

The major indices ended mixed over a holiday-shortened week, which saw the release of the first major corporate earnings reports of 2022. Value stocks continued to outperform their growth counterparts, but small-caps regained ground lost the previous week on large-caps. Financials lagged within the US market, dragged lower by JPMorgan Chase after the banking giant missed Wall Street’s estimates and energy shares outperformed. The market was closed Friday in observance of the Good Friday holiday.

Anticipation of a sharp deceleration in earnings growth appeared to be one factor weighing on sentiment. In contrast to recent quarters, analysts have been lowering their earnings estimates and expect profits for the S&P 500 as a whole, to have grown in the mid-single-digit percentages over the year before—the slowest pace since late 2020. However, worth noting that research suggests companies typically exceed analyst estimates by some margin.

Inflation

Inflation data and how price pressures would impact corporate margins also seemed to be in the spotlight. Producer price inflation data out of China over the weekend prior weighed on sentiment before trading began on Monday, while Chicago Federal Reserve Bank President Charles Evans, historically considered “dovish,” said at an event in Detroit that he considers an accelerated pace of rate hikes worth debating.

On Tuesday, the US Labour Department reported that headline inflation jumped 1.2% in March, bringing the year-over-year increase to 8.5%, slightly above consensus expectations and a new four-decade high. The core rate excluding food and energy prices rose only 0.3% however, below consensus expectations of around 0.5%. Stocks initially rose on hopes that inflation might be peaking, but the rally was short-lived as crude oil prices rallied back through USD 100 a barrel after Russian President Vladimir Putin said peace talks with Ukraine are stalled. The S&P 500 ended the week -2.1%.

Europe

European shares rose amid some relief that the European Central Bank (ECB) did not adopt a more hawkish stance at its policy meeting. The pan Europe 600 Index ended the holiday-shortened week 1.09% higher. The UK’s FTSE 100 fell 0.79% as energy stocks weakened and the UK pound strengthened against the U.S. dollar. A stronger pound weighs on the index because many of its companies are multinationals with overseas revenues.

Alongside a stronger pound, the UK’s economic recovery showed signs of faltering while inflation continued to accelerate. Gross domestic product growth slowed to 0.1% in February, versus 0.8% in January, due to a decline in construction and production output. The quarterly growth rate was 1.0%, down from 1.3% in January. However, the full effect of Russia’s invasion of Ukraine in late February was not captured by the data. Meanwhile, inflation jumped to a 30-year high of 7.0% in March from 6.2% in February on rising fuel costs and across-the-board increases in prices. UK financial markets indicated that traders are all but certain the Bank of England will raise its key interest rate by a quarter-point to 1.0% in May.

Asia

Chinese markets retreated in the week to Thursday as a surging coronavirus outbreak in Shanghai fueled concerns about supply chain disruptions. The broad Shanghai Composite Index eased 0.8%, and the blue chip CSI 300 Index declined 0.92%. Shanghai reported more than 27,000 coronavirus cases on Thursday, a new record, as the city experiences its worst outbreak since the virus first emerged in Wuhan in 2019. Shanghai’s 25 million residents have been under lockdown since March 28.