Weekly round up
It was a volatile week for global financial markets, with the FTSE 100 Index falling by 1.45% to trade at 7,440 points at the time of writing.
Bearish sentiment returned, pressured by stagflation fears, tightening monetary policy and slower economic growth, while the earnings season continued. The Bank of England raised interest rates by 25 basis points to 1% during its May 2022 meeting, which is the fourth consecutive rate hike, pushing borrowing costs to their highest levels since early 2009.
Policymakers said global inflationary pressures have intensified sharply following Russia’s invasion of Ukraine, leading to a material deterioration in the outlook for UK growth. The UK economy is estimated to have risen by 0.9% in Q1 2022, however GDP is expected to be broadly unchanged in Q2 and contract around 1% by Q4, owing to a decline in households’ incomes. Retail gas and electricity prices are projected to rise around 40% when the Ofgem price caps are next reset in October, with forecasts of GDP shrinking a further 0.25% in 2023. Meanwhile, inflation is expected to rise further over the remainder of the year, to just over 9% in Q2, and average slightly over 10% at its peak in Q4.
Elsewhere, Boris Johnson faced renewed pressure on his leadership on Friday after the Conservatives suffered significant defeats in local elections across the UK, including big losses in London.
In the commodity markets, Brent crude futures rose above $113 per barrel on Friday and are headed for their second straight weekly advance, as concerns about tight global supply and an impending EU ban on Russian Oil outweighed concerns about global economic growth. Oil prices have increased approximately 4% this week, lifted by the EU’s proposal to phase out supplies of Russian crude oil in six months and refined products by the end of 2022. Proposals also include a ban on all shipping, brokerage, insurance, and financing services offered by EU companies to transport Russian oil in a month.
Gold held around $1,880 an ounce on Friday and is headed for its third consecutive week of losses, coming under pressure from a rebound in the dollar and Treasury yields as investors continued to bet on further Federal Reserve tightening to bring decades-high inflation under control. Gold is down more than 1% so far this week as the US dollar held near its highest levels in 20 years against major currencies, while the benchmark US 10-year yield rose firmly above 3%.
US equity futures fell slightly on Friday following a technology-led sell off on Wall Street, as rising Treasury yields signalled continued expectations for larger rate hikes to control soaring inflation, even at the risk of harming the economy.
In regular trading on Thursday, the Dow Jones Industrial Average lost over 1,000 points and the tech-heavy Nasdaq Composite plunged nearly 5%, with both indices seeing their worst one-day drops since 2020. The S&P 500 index also saw its second worst day of the year, falling by 3.56%. Technology companies were hit hardest by the selloff with sharp losses from Tesla, down 8.3%, Apple, down 5.6%, Amazon, down 7.6%, and Microsoft down 4.4%.
The market moves came after the Federal Reserve hiked its benchmark interest rate by half a percentage point for the first time since 2000, sending a strong signal that it intends to do so again at the next two meetings. Investors now await the April nonfarm payroll with estimates pointing to 391,000 jobs added, which would be the smallest gain in a year, but would still point to a tight labour market as demand for workers remains elevated.
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