Weekly round up
Despite a volatile week on the global financial markets, UK markets managed to trade modestly higher, with the FTSE 100 Index rising by 0.15% during the week, to trade at 7,570 points at the time of writing.
Financial and commodity stocks were among the worst performers on Friday due to mounting concerns about the economic outlook following hawkish comments from Federal Reserve chair, Jerome Powell and weak domestic data.
The latest figures showed retail sales in the UK dropped 1.4% month on month in March, following an upwardly revised 0.5% fall in February and much worse than market forecasts of a 0.3% decline, as affordability starts to weigh, and consumers spend less due to rising prices.
The biggest downward contribution came from non-store retailing, down by 7.9%. The Gfk consumer confidence index for Britain slipped by seven points in April from the month before to reach a near record low, as the cost-of-living squeezes household budgets.
The weak economic outlook for the UK caused the British pound to depreciate more than 1% to below $1.29, the lowest level since November 2020.
In the commodity markets, Brent crude futures fell below $107 per barrel on Friday and were on track to lose about 4% this week, weighed down by the prospect of higher interest rates, weaker global growth, and slower demand from top importer China, even as the EU considered a ban on Russian oil.
Concerns about the Ukraine conflict fanning inflation and denting economic growth dominated trading in the second half of the week, with the IMF slashing its global growth forecast by nearly a full percentage point. Volatility is expected to continue with oil markets remaining tight as major producers struggle to meet output targets.
Gold traded around $1,932 an ounce on Friday and is on track to lose more than 2% this week, pressured by a strong dollar and rising US Treasury yields as investors prepared for the Federal Reserve to aggressively raise interest rates to bring inflation under control.
Meanwhile, investors remained cautious of geopolitical uncertainties and the risk of stagflation, which may drive safe-haven demand and support gold prices.
US equity futures extended losses on Friday, driven by hawkish comments from the Federal Reserve which hinted a half-point rate hike was likely next month. This followed a dramatic reversal on Thursday when the major averages wiped early gains and closed sharply lower.
The Dow Jones Industrial Average ended 1.1% lower, while the S&P 500 and Nasdaq Composite declined 1.5% and 2.1%, respectively. Speaking at a panel hosted by the International Monetary Fund, Jerome Powell made it clear that the central bank remains committed to taming inflation, currently at 40-year highs, while opening the door for a 50bps interest rate hike in May.
The Fed is also expected to start reducing its huge balance sheet, which consists of about $9 trillion worth of Treasuries and mortgage-backed securities. Powell noted that other than pernicious inflation, the US economy is very strong, and characterised the labour market as extremely tight. Elsewhere, the dollar index is set to gain for the third straight week.
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