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Market Update May Monday 2nd 2022

Markets and key events

Markets struggled for direction this week, with investors very much focused on key company earnings results. It was a mixed picture for US equities, and particularly US technology stocks, although both indices finished the week respectively higher by just 0.37% and 0.25% as of 12pm London time. Despite the tumble in Netflix shares last week, shares in Microsoft and Facebook’s parent Meta surged after both companies reported a larger-than-expected profit on Wednesday. Meanwhile, Amazon shares tumbled about 10% in pre-market trading after the company forecasted current-quarter sales below estimates. In addition, Apple warned supply chain shortages could cost the company up to $8bn in the second quarter; Apple’s shares on Friday trended lower in pre-market trading.

With a clear focus on corporate news, US equity markets shrugged off poor economic data. US GDP unexpectedly dropped for the first quarter of 2022, down by 1.4% on an annualised basis against expectations of a 1% increase. This was primarily driven by a growing trade deficit as import volumes and prices surged. However, US households remain resilient with personal consumption growing over the first quarter.

Elsewhere European markets trended lower. As of 12pm London time, the UK market finished lower by just -0.23%, whilst the European main market traded into negative territory by -0.86%. This comes as the current quarterly earnings season approaches the halfway stage in Europe. According to Barclays nearly 75% of companies so far have beaten profit expectations.

Strict lockdowns persist in China

In Asia, equity markets declined over the week, primarily driven by the continuation of strict lockdowns due to the Covid wave in China. Panic buying ensued in Beijing at the start of the period as residents anticipated harsh social restrictions similar to those in Shanghai. On Friday, the Chinese government promised to provide fiscal support to “strengthen macro adjustments” and “achieve full-year economic and social development goals” in light of the lockdowns. The Shanghai Composite still finished down,1.29% over the week, but the messaging on Friday helped the Hong Kong index into positive territory, up 2.18% over the week. Elsewhere the Japanese index finished marginally lower by -0.29%.

Government bonds trade flat

After a poor start to the year, government bond prices faced a pause in selling. US 10-year treasury bond yields (which move inversely to their price) declined 4 basis points to trade at 2.85%. The equivalent 10-year UK Gilts yields also declined by 10 basis points, now trading at 1.86%. Meanwhile, 10-year German bund yields declined by 6 basis points to finish the week trading at 0.91%.

Russian Ukraine conflict continues to dominate commodity prices

European gas prices soared this week after Russia’s state-owned Gazprom suspended gas supplies to Poland and Bulgaria on Wednesday. The wholesale gas price jumped as much as 20%, as EU leaders accused Moscow of blackmail. Oil prices settled higher on reports that Germany will join other European Union member states in an embargo on Russian oil, which could further tighten supplies in a bid to stop funding Russia. As of 12pm London time, Brent Crude rose 2.91% over the week, to $109 per barrel.

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