Market Insights Weekly Update: Inflation Woes As Major Stock Indexes Fall

In this week’s market insights, we noted that inflation hit a decade high in Singapore. Also in China, Covid-19 has worsened, speculating fears of a potential lockdown in the Capital. In addition, Russia cuts off gas supplies, causing a standoff between Moscow and European energy supplies.

6 May 2022

Inflation Woes

Major stock indexes fell last week for the fourth week in a row with the S&P 500 down 3.26% and MSCI World Index down 3.01%. MoneyOwl’s 100% Equity Portfolio was relatively resilient, with only a negative 1.83% decline, owing to stocks with value factors outperforming. However, the month of April offered no relief for the stock market as major indexes were all down for the month.

Fixed Income asset classes were flat with the benchmark US 10-year Yield falling slightly by 1bps to 2.89%. The Bloomberg Barclays Global Agg Index were slightly positive at 0.6%.

Relatively speaking, last week was pretty quiet in terms of headline news. Notable headlines include growth slowing down in the US, which will influence the Federal Reserve decision in the upcoming meeting on 4 May and lockdowns in China is pressuring the outlook.

During the week, MAS statistics show that Singapore’s inflation hits decade highs in March as consumer prices surged by 5.4%, a high not seen since April 2012 – as the cost of food, services, private transport and accommodation all rose.

With inflation at multi-year highs, rather than worry about volatility in the market, investors should focus on managing their cash flow to spend within their means – from reviewing their budget and cutting down on expenses to waiting for inflation to be contained. This is the best way to manage inflation in the short term. For the long term, investors should focus on making their savings grow so that its value does not get eroded by inflation. Historically, capital assets have always been able to outperform inflation in the long run. The most reliable way to let your savings grow faster than inflation is to remain calm and stay invested.

US GDP Speed Bump

The U.S. economy reversed course in this year’s first quarter when it shrank at an annual rate of 1.4% after posting full-year growth of 5.7% in 2021. While many economists believe the first-quarter setback was temporary, it marked the worst quarterly GDP result since the second quarter of 2020, when the pandemic triggered a brief recession.

China’s Lockdowns and Building Boost

China said it would step up infrastructure construction, the latest pledge to bolster an economy that’s been hammered by a widening series of Covid-related lockdowns. The move came as China’s coronavirus outbreak worsened, with rising cases in Beijing sparking fears about an unprecedented lockdown of the capital. Residents rushed to stock up on supplies after the government announced mass testing, while President Xi Jinping is also trying to quell escalating anti-government criticism in Shanghai, which is in its third week of lockdown. The country’s benchmark stock index remains at the lowest level in almost two years.

Twitter’s Free Speech

Tesla shares wiped out about $126 billion in value on Tuesday as investors are worried that Elon Musk may sell shares to complete Twitter Inc.’s $44 billion takeovers. Elon Musk has reached a deal to buy Twitter for $44 billion, using one of the biggest leveraged buyout deals in history to take private the 16-year-old social networking platform. Investors will receive $54.20 for each Twitter share they own. The Tesla CEO has spoken about his plans to make the platform a haven for free speech online and has complained that the service is too heavy-handed when it comes to moderating user tweets.

Nuclear War

Russian Foreign Minister Sergei Lavrov warned there’s a “serious” risk of nuclear war over Ukraine even though the Kremlin is willing to talk to the US to try to resolve the confrontation. Ukrainian President Volodymyr Zelensky called on citizens to do everything to make the presence of Russian troops in their homeland “unbearable,” declaring that Moscow won’t win the war.

Russia has cut off gas supplies to Poland and Bulgaria on Thursday in a major escalation in the standoff between Moscow and Europe over energy supplies and the war in Ukraine. President Putin has demanded supplies switched off until the two countries agree to Moscow’s demands to pay for the fuel in rubles.