Market Update May Monday 23rd 2022
US stocks continue to fall
US stocks continued their decline this week as results from two key grocery retailers, Walmart and Target, spooked investors, as inflationary pressures impacted their results, raising concerns that pricing pressures are taking their toll on the strength of the economy. The US stock market fell 4% on Wednesday, its biggest one-day loss since June of 2020. Unless there is a sharp bounce today, the US market will not have fallen for such a sustained period since 2001 when the dotcom bubble burst. However, outside of the US, where valuations are not so stretched, the picture was not so gloomy with many regions recording gains in equity markets over the week.
As of 12pm on Friday, London time, US stocks fell 3.1% over the week, with the US technology sector declining by 3.5%. European and UK equities rose 0.3%, Japanese stocks were up by 0.7% and the Australian market increased by 1.0%, helped by commodity prices which were on a firmer footing as the US dollar weakened. Emerging markets rose 1.0%, with Latin America in particular benefitting from both the fall in the US dollar and the bounce in commodity prices.
UK’s inflation hits 9%
US government bond yields, which move inversely to price, fell a little over the week, with the 10-year Treasury trading at 2.86%. German bunds were largely flat, with the 10-year currently trading at 0.98%. Whilst UK gilt yields rose, trading at 1.93% in a week that the UK’s inflation data hit 9% in the year to April, the highest level on record in over forty years, with three quarters of the increase coming from the increase in the energy price cap, which rose by 54% in April. However, price increases were also climbing in almost all categories of expenditure and inflation in the UK is forecast by the Bank of England to rise to 10% later this year.
Dollar weakens
The US dollar weakened earlier on in the week by 1.6% against a basket of internationally traded currencies, leading to a good week for commodity prices which often move inversely to the dollar. The gold price rose 1.8%, now trading at $1,848, copper was up 3.0%, now priced at $9,460 a tonne, and Brent crude oil gained 0.9%, now trading at $112.6 a barrel.