Market Commentary – May 2022

 

GLOBAL MARKETS

Bonds and equities fall on the back of higher inflationary pressures and continuation of the war in Ukraine

Global economic outlook deteriorated as China toughened COVID-19 restrictions

US MARKETS

US Techs impacted by negative sentiments for growth

The annual US Consumer Price Inflation (CPI) reached 8.5%. Technology stocks suffered as the market sentiment for growth turned. Core inflation, taking out items such as food and energy, hit 6.5%, a 40-year high. Equity markets fell on the back of lower-than-expected earnings. Large tech companies were among those citing supply-chain issues and rising energy prices for missed earnings. US GDP unexpectedly declined 1.4% in the first quarter, from an expansion of 6.9% in the final quarter of 2021. Government spending fell, investment growth declined, but consumer spending remained resilient.

Down -8.8% (US 500)

EUROPEAN MARKETS

The war in Ukraine still heavily impacting the region

Equity markets were generally down but still supported by stronger than expected earnings from large blue-chip stocks. Eurozone inflation rose to 7.5% as the prolonged war between Ukraine and Russia continues to impact the supply of commodities from these two countries. The shortages have already caused prices to spike, and inflationary pressures are not likely to abate soon. Russia halted gas supplies to NATO members Poland and Bulgaria in retaliation to economic sanctions. ECB has been slow with regards to rate rises but inflation numbers are putting pressure on the central bank..

Down -1.2%% (Euro 600 Index)

UK MARKETS

Inflation continues to weigh on the overall markets

UK GDP grew 1.3% in the fourth quarter of 2021 while Manufacturing PMI fell to 55.2 in March from 58.0 in February. Earnings from Astra Zeneca, Reckitt Benckiser came in higher than expected, with both benefiting from their defensive non-discretionary properties. UK CPI rose to a 30-year high of 7.0% in March, with the biggest contributor being the rise in fuel prices. Retail sales fell in April as stores reported a fall in sales volumes, with consumers showing signs of changing their spending habits to counter the effects of rising inflation.

Down -0.1% (UK All Share)

ASIAN MARKETS

Continued lockdowns in China an on-going concern

China’s hard and prolonged lockdown of businesses prompted worries about slowing demand, and commodity prices got hit as a result.  China’s factory activity was also down as lockdowns impacted production. Caixin/Manufacturing Purchasing Manager’s Index (PMI) was 46 from 48.1 a month ago. A reading of below 50 indicates contraction.

Down -3.5% (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

  • US equity markets, and in particular the tech heavy Nasdaq, spiralled downwards as Apple and Amazon corporate earnings came in below expectations.
  • UK equity market fared better than US, Europe and Emerging Markets, as the FTSE 100 is heavily weighted with inflation-protection and defensive sectors.
  • WTI Crude oil was volatile during the month as the rising inflationary environment, coupled with the weakening demand backdrop, weighed on investor minds.
  • Defensive sectors such as REITs and infrastructure performed well in the month. These real assets are seen to have a degree of inflation protection and are thus preferred by investors during times of market turmoil.

 

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 continues its ascent against major world currencies, supported by the Fed’s quantitative tightening and rate rise programme. The US Dollar index hit 2-year highs against a basket of currencies as investors seek the safety of the USD.
  • Sterling was weak on the back of the US Dollar rally. Poor economic data, such as retail sales numbers and rising inflation, has created a headwind for GBP.
  • Japanese Yen reached 20-year lows against the US Dollar as the Bank of Japan continues, unlike the rest of the world in quantitative tightening, a loose monetary policy.
  • Euro lost around 5.0% against the US Dollar in April, and is down around 7.0% in the year, as inflation and economic slowdown weighed on investors.

 

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 10-year Treasury yield rose to 2.78% as the Fed continues to raise rates and reduce quantitative support in an attempt to control inflation. UK 10-year Gilt yield rose to 1.88% while, notably, the yield on the 10-year German bunds rose to 1.04%, reversing three years of negative yields.
  • Government bond market volatility is higher than that of equities as investors continue to sell bonds. Economic data globally is weak, which is not supportive of government bonds. High inflation and a contracting, rising interest rate environment is weakening investor confidence.
  • Escalating Fed hawkishness caused riskier assets to fall. US High Yield market is down 3.2% year-to-date. High yield spreads have also widened, reflecting investor concerns about the increasing risk of default at the riskier end of the spectrum.
  • Inflation has an eroding effect on both the coupons and principals of bonds, especially the principal of bonds with longer terms to maturity. Inflation generally negatively impacts bond markets.

 

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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