Market Insights: Weekly Update (11 April 2022 – 15 April 2022)

It's been a gloomy week with dropping equity prices, surging inflation rates and continued Covid restrictions.

20 April 2022

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It’s been a bleak week with dropping equity prices, surging inflation rates and continued Covid restrictions.

In a holiday-shortened week (due to Good Friday), global equities posted negative results with the S&P 500 falling 2.1% and MSCI World declining 1.7%, while MoneyOwl’s 100% Equity portfolio fell by 1.4%. Fixed Income assets declined 0.64% (Bloomberg Global Agg Bond Index) as the US 10-Year yield rose 12bps to 2.83%.

Unfortunately, there was no good news coming out during the week and asset prices were mostly pressured by:

The hot inflation environment,
Continued expectations of an aggressive Federal Reserve in tightening monetary policies,
The ongoing war in Ukraine and,
Uncertainty of the global economic impact due to lockdowns in China.

Surging Inflation in the US and at home in Singapore

The gap has widened again between actual inflation of 8.5% in the US (the highest since 1981) and the 2.0% figure that the US Federal Reserve (Fed) tries to maintain as its target rate necessary to foster sustainable economic growth. This trend of an elevated inflation does not support hopes of a “softer” federal reserve and investors’ expectations of an aggressive Fed in tightening the world’s biggest economy monetary policies continue.

On Thursday, the Monetary Authority of Singapore (MAS) further tightened monetary settings and raised its inflation forecast, sending the SGD higher, as it seeks to fight cost pressures that threaten the recovery from the pandemic. The latest annual inflation rate was at 4.3% in February 2022, the highest reading since February 2013.

European Central Bank (ECB) and the War in Ukraine

Last week’s ECB meeting left its benchmark interest rate and parameters of its bond-buying operation unchanged. The ongoing war in Ukraine remained a key drain on the conviction of adjusting Europe’s monetary policies, after several failed rounds of ceasefire talks and last week’s new sanctions on Russia from the US and European Union. ECB President Christine Lagarde warned that the war in Ukraine has increased the risks of near-term inflation.

Russia appointed a new war commander as it refocused its war effort in Ukraine’s east, having failed to secure territory around Kyiv. Austrian Chancellor Karl Nehammer plans to meet President Vladimir Putin on Monday, two days after visiting Kyiv. The impact of the war will shrink Ukraine’s economy by 45% this year, while Russia’s will contract by 11%, according to World Bank’s projections.

China Travel Plans

China is defending its virus measures after the US encouraged Americans to reconsider travelling to China. The State Department recommended avoiding virus hotspots, including Shanghai, due to what it calls an “arbitrary enforcement” of Covid restrictions; and allowed non-emergency employees and their family members to leave its Shanghai consulate.

China’s central bank, the People’s Bank of China (PBoC) said on Friday it would cut the amount of cash that banks must hold as reserves for the first time this year. The cut in required reserve is expected to boost the long-term funds for banks, enabling them to step up support for industries and firms affected by Covid-19 outbreaks. However, PBoC kept its benchmark interest rate unchanged for a third straight month, citing the reason of “keeping banking system liquidity reasonable ample”.