It has been a volatile week for markets, as a four-day rally in US equities was cut short on Thursday as Meta’s (Facebook’s parent company) share price fell by over 26% in afterhours trading on Wednesday, following the release of disappointing earnings guidance and a decline in its active user base. This wiped a massive $230 billion off its valuation in a single day, demonstrating how much more sensitive investors have become to earnings results of richly valued companies, in an environment where interest rates are expected to rise.
As of 12pm on Friday, London time, US equities were up 1.0% over the week, with US technology stocks rising 0.8% despite suffering losses of 3.7% on Thursday alone. Overall earnings results were mixed, with Alphabet (Google’s parent), Amazon and Snap, a direct competitor to Meta, all beating earnings forecasts. However, Paypal, the digital payments company, also suffered sharp losses as it warned that many of the new customers accumulated during the pandemic have not become active users of its service, guiding towards a weaker earnings outlook than previously thought. Its share price fell 25% on the news and by the close on Thursday was down by 30% from its midweek peak.
European stocks, having not benefitted from the rally as much at the start of the week, were trading lower by 0.5% as of 12pm on Friday. Whilst UK equities, having a low exposure to technology and a much higher exposure to financials and commodity stocks, were up 0.8%. Japanese equities, trading on much lower valuations to the US, finished the week 2.9% higher, whilst Australian stocks rose 1.9%. Emerging markets rose 1.6%, with Hong Stocks playing catch up, rising 4.3% after the Lunar New Year three-day public holiday.
Yields on government bonds, which move inversely to price, gently rose over the week, with the 10-year US Treasury now trading at 1.82%. Perhaps more strikingly, German bunds rose into positive territory for the first time in over two and half years as European inflation exceeded expectations, coming in at 5.1% for the year to the end of January. As inflation is a year-on-year comparison economists had expected a decline, but after stripping out food and energy, although it fell back to 2.3% from 2.6% the month before, this was still higher than forecasts, with many economists having pencilled in a figure beneath 2%. The president of the European Central Bank (ECB), Christine Laggard, at a press conference on Thursday declined to rule out raising interest rates this year. Markets are currently pricing in two rate hikes by the ECB by the year end which, if borne out, may bring about the end of negative interest rates in the European Union.
As widely expected, the Bank of England increased interest rates to 0.5% on Thursday, in the face of escalating inflationary pressures. This was in the same week as the energy regulator announced a 54% increase in the price cap for energy bills, with a further increase forecast for October. This is on top of a 1.25% increase in National Insurance contributions due in April to fund further expenditure on the NHS. The squeeze on household expenditures has arrived.
The gold price climbed 1.4% this week, now trading at $1,812 an ounce. The copper price also rose, trading at $9,868, an increase of 3.9%. Crude oil rallied by a similar amount, rising by 3.2%, with Brent crude now trading at $92.9 a barrel and US WTI (West Texas Intermediate) $92.1. Whilst iron ore fell slightly, dropping 0.8%.
US employment figures are due out today at 1.30pm London time, with 125,000 new jobs expected to have been created in January in the non-Farm payrolls. This has gradually been revised down following the very weak private sector payrolls number released on Wednesday by ADP, with the number of jobs falling by 301,000 versus forecasts of a rise of 180,000. This has been attributed to the spread of the Omicron coronavirus, to which markets are largely looking through as the virulence of the variant has increasingly been downplayed. However, whilst the US Federal Reserve says it remains data-dependent as to its plans for quantitative tightening and interest rate policy, it remains an important indicator.
Your message (optional)
Lawsons Equity Limited is a company registered in Malta with company number C49564 and Licenced by the Malta Financial Services Authority as Enrolled Insurance Brokers under the Insurance Intermediaries Act 2006, and to provide Investment Services under the Investment Services Act, 1994. Lawsons Equity Ltd have passported their services across the EU. To see a full list of countries click here
In the United Kingdom, Lawsons Equity Limited is deemed authorised and regulated by the Financial Conduct Authority. Details of the Financial Services Contracts Regime, which allows EEA-based firms to operate in the UK for a limited period to carry on activities which are necessary for the performance of pre-existing contracts, are available on the Financial Conduct Authority’s website.
Copyright 2020 Lawsons Equity Ltd | Designed by Echo
Disclaimer: The information provided on this website is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning investments or investment decisions, or tax or legal advice. Similarly, any views or options expressed on this website are not intended and should not be construed as being investment, tax or legal advice or recommendations. Investment advice should always be based on the circumstances of the person to whom it is directed, which circumstances have not been taken into consideration by the persons expressing the views or opinions appearing on this website. Lawsons Equity Limited has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website. You should always take professional investment advice in connection with, or independently research and verify, any information that you find or views or opinions which you read on our website and wish to rely upon, whether for the purpose of making an investment decision or otherwise. Lawsons Equity Limited does not accept liability for losses suffered by persons as a result of information, views of opinions appearing on this website. This website is owned and operated by Lawsons Equity Limited.