Market Commentary April 2022

 

GLOBAL MARKETS

Global markets volatile as fears of Russia disrupting energy supplies caused energy prices to spike

Spiralling living costs on higher inflation, looming rate rises, borrowing costs, led equity markets to seesaw

 

US MARKETS

Equity markets swung often during the month

US equity markets ended the month stronger despite some sharp moves in both bonds and equities intra month. Bond and equity markets swung between risk on and risk off, with investors navigating between speculative trading (tech stock rally) and preserving capital (defensive large cap equities). US annual inflation reached 7.9% in March. Fed began quantitative tightening, raising rates for the first time since 2018, but by a modest 0.25%. Monetary tightening is expected to gather pace as the bank looks to reduce its $9trn balance sheet.

Up 3.6% (US 500)

 

EUROPEAN MARKETS

The war in Ukraine heavily impacting the region

Eurozone shares remained subdued as the close proximity to the war in Ukraine, as well as the region’s reliance on Russian energy, caused supply worries and fuelled energy price spikes. The ECB, previously dovish on rates, changed their rhetoric as annual inflation in the area rose to 7.5% from 5.9% in February. Any chance of a ceasefire in the region, with Russia and Ukraine entering negotiations in Turkey, may allow the Eurozone to regain some semblance of stability.

Up 0.6% (Euro 600 Index)

 

UK MARKETS

Inflation and Spring statement weigh on the markets

UK markets rose modestly over the month as the Chancellor’s Spring statement weighed on investor sentiments. UK CPI inflation reached a 30-year high of 6.2%, translating into a hefty fall in disposable incomes alongside rising NI contributions. Large cap stocks, as tracked by FTSE 100, outperformed small and midcaps due to its large weighting in oil & gas and mining stocks. Meanwhile, in an effort to tackle inflation, BoE raised rates for the third time by 0.25% to 0.75%.

Up 0.7% (UK All Share)

 

ASIAN MARKETS

Lockdowns in China a cause for concern

Japanese stock market was strong as BoJ Governor Kuroda vowed to maintain ultra-loose monetary policy in stark contrast to Western developed markets. The bank’s target range of +/-0.25% is being maintained. Emerging Market equities fell as geopolitical tensions, inflation and deteriorating growth outlook impacted the region adversely. China lagged overall EM, as lockdowns were imposed in several cities to curb rising Omicron COVID-19 cases. Shanghai suspended manufacturing, public transport, and the financial hub, effectively shutting down production.

Down 2.0% (Asia Index)

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

 

 

 

Key Points

  • Russia’s attack on Ukraine was centre stage, pushing up commodity prices.
  • Energy importing countries impacted most as fears grow of interruption to supplies of oil and gas.
  • With Russia and Ukraine’s other main exports being agricultural products and soft commodities, such as wheat, corn, there is also likely to be supply contraction, further fuelling inflation.
  • Oil prices were volatile as EU looked to join the US in imposing sanctions and banning imports of Russian oil. Oil prices rose close to $120pb then fell back to below $100 by month-end.
  • Economic recovery concerns were already evident as the inflationary environment begins to impact real returns, income. Russian invasion of Ukraine accentuates these concerns, especially in food, energy.

 

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

 

Key Points

  • US Dollar stood firm in the month. The Dollar index, as measured against six major currencies, was close to the $100 mark, underpinned by the Fed’s rate rise and tightening policy.
  • Sterling weakened against the US dollar and Euro. The BoE’s softer tone at its March meeting, of further tightening of policy ‘might be’ needed rather than ‘likely’, disappointed investors.
  • Japanese Yen was weaker still and not in keeping with its typical ‘safe haven’ status. However policymakers are adamant that the decision to keep monetary policy loose and the Yen weak should benefit economic recovery.
  • The Euro was weak against US Dollar, strengthened against Sterling. The strength of the US Dollar dominated markets as the Fed looks set to increase the pace of rate rises versus the ECB, despite a move to a more hawkish stance by the latter.

 

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

 

Key Points

  • Government bond markets mirrored stock market volatility in March. Inflationary environments are detrimental to bond investors and bond returns suffered as a result.
  • US 10-year Treasury yield rose to highs of 2.6%. The US Treasury market is having one of its worst sell offs in recent times, with a noticeable rise in volatility. Expected aggressive rate rises and a reduction in its balance sheet is pushing yields up across maturities.
  • The 2-year and 10-year US Treasury yields ended the month at 2.34% and 2.33% respectively. This “yield curve inversion” is perceived by some as a sign of a possible recession. The rise in US 2-year yields is demonstrative of the Fed’s tightening.
  • UK 10-year Gilt yield rose to 1.6% as investors shunned bonds due to an increasing inflationary environment. UK gilts are down 7.2% year-to-date, weaker than US Treasuries which are down 5.6% over the same period.
  • High Yield fared better than corporate bonds which were weak in the month, reflecting investor sentiment of searching for alternative income providing assets.

 

DISCLAIMER – The value of investments and the income from them can go down as well as up and past performance is not a guide to future performance. Returns are in local currency unless indicated otherwise. Source: Bloomberg.

 

Disclaimer: The information contained in this report is for illustrative purposes only and should not be construed as a solicitation nor offer, nor recommendation to acquire or dispose of any investment. Specifically, the share class used to create the illustrations may not be available on all platforms nor be suitable for individual investors. This report was produced by Collidr Research (“Collidr”) for Affinity Integrated Wealth Management (AIWM) and while AIWM and Collidr use reasonable efforts to obtain information from sources which they believe to be reliable, neither AIWM nor Collidr make any representation that the information or opinions contained in this report are accurate, reliable or complete. The information and opinions contained in this report are subject to change without notice. Model returns are calculated using the most appropriate share class of the underlying funds, having regard to the illustrative nature of the report, with all income being reinvested. As a result, real portfolio performance may vary from model performance. Where model portfolio histories are shorter than three years, historic model returns are substituted prior to inception date with returns from an Collidr performance benchmark. This benchmark is constructed from the average returns of all Collidr portfolios with similar risk profiles that existed during that time. The value of investments and the income from them can go down as well as up and past performance is not a guide to the future performance. Affinity Integrated Wealth Management is a trading style of Buryfield Grange Limited, Buryfield Grange Life Planning Limited and Affinity Integrated Wealth Management Ltd. ‘Buryfield Grange Limited’ is authorised and regulated by The Financial Conduct Authority. Not all services provided by Buryfield Grange are regulated by the Financial Conduct Authority. ‘Buryfield Grange Limited’ is registered in England and Wales at Inspire House, 20 Tonbridge Road, Maidstone, Kent, ME16 8RT. Company  registration number 4568338. Collidr Research is a trading name of Collidr Technologies Limited, registered in England and Wales at 34 Southwark Bridge Road, London, SE1 9EU. Company registration number 09061794. Data Providers: Bloomberg L.P. and Collidr.

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