Jason Day, Senior Investment Manager at abrdn, summarises this week's global market movements and looks ahead to next week.
This week
I’m covering for Tom this week who’s visiting New York and so today’s edition has a distinct transatlantic twang.
New York has long been on my hit list of places to visit and being a huge fan of all things Rat Pack, it’s incumbent on me this week in Frank Sinatra’s words to ‘start spreading the news.
And that news was not particularly cheery this week. US equities have continued to extended losses which looks like culminating today for seven down weeks in a row, that’s a period of straight losses that we haven’t seen since 2001.
A combination of factors is driving this weakness and markets certainly were little buoyed by J Powell, as the Chairman of the Federal Reserve seems to be intent of doing things “my way” with an anticipated tightening cycle to combat inflation head on, regardless of the collateral damage to equity markets. The so called “Powell Put”, looks like a thing of the past with a “Powell Pivo” certainly amplifying volatility.
Case in point, the S&P 500 was teetering on bear market territory this week from its close at year end (20% pullback in dollar terms), which is an extraordinary turn of events given that we entered the year with above trend economic growth in the US, the country operating at full employment and extremely resilient company profits (earnings) forecasted. In addition, consumers had by some estimates, some $2tn of excess savings on standby ready to purchase goods and services.
In sterling terms, the picture is somewhat better and US equities are one of the stronger markets as equities worldwide continue to be under pressure from slowing growth, rising inflation and the ongoing supply chain disruption from Ukraine.
On the topic of inflation, this week’s headline CPI figure of 9% for the year to April in the UK now puts us in the same position as our American cousins across the pond with inflation reaching levels in both countries last seen in 1982 in the Thatcher, Reagan era.
On Thursday the US Senate approved $40bn of mainly military + economic and humanitarian aid on top of the c.$3bn that has already been directly spent on supplying weapons. With the entire Russian military defence budget for last year estimated at $66bn, the US support is simply staggering in scale. With no sign of a ceasefire and Russian forces remaining on Ukrainian sovereign territory, food and energy prices will continue to be under strain
Next week
Central bank action will focus on the US FOMC meeting minutes of the 4th of May meeting and April Personal Consumption Expenditure figures which is the Fed’s preferred inflation gauge. The minutes may illuminate the wider thoughts of Fed officials on Quantitative Tightening (reducing the Fed’s balance sheet) and the future trajectory of interest rates.
Initial May Purchasing Manufacturing Indices will be scrutinised for any signs of slowdown or contraction (reading below 50) for the US, Germany, France, UK and Japan. The IFO Business Climate indicator in Germany on Monday will also be closely watched as an important barometer of sentiment.
The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding as at 20 May 2022.