Market Commentary - May 13, 2022

The U.S. markets continue to swing rapidly on yesterday’s trading session as early gains were given up for most of the sessions and a sudden rally towards the end brought the major stock indices up again to finish the day almost flat, as both the S&P 500 and Nasdaq indices closed +0.06% and -0.13% for the day. Both Apple and Microsoft weigh the heaviest on the indices as their prices dropped 2%. Global equity markets are quite fragile at the moment and looks like it is undergoing three major themes, which are higher inflation, slowing growth and rising rates, hence, a stagflation environment.

In Europe, local stocks slumped on Thursday as U.S. inflation data caused investors to worry about the impact of higher rates on economic growth. All the primary stock indices were down including FTSE 100, CAC 40 and DAX, they all declined by 1.56%, 1.01% and 0.64% respectively. Meanwhile, both Finland’s prime minister and president have announced that the country will join NATO, which could also push neighboring Sweden to apply for such membership as well. NATO is expected to approve both Finland and Sweden’s requests, but the full application process could take 6 to 12 months till completion.

Asian equities have partially recovered from yesterday’s slump, with both the ASX 200 and Nikkei 225 indices up by approximately 1.58% and 2.61% towards the mid-day session break. HK’s Hang Seng index advanced over 2% to 19,809.5 points, while the Chinese blue-chip CSI 300 index rose 0.4% at the trading break. Hong Kong’s cardinal Joseph Zen was arrested on Wednesday and have been accused of colluding with foreign forces, which is against the 2020 national security law. In addition, the Chinese National Immigration Authority has announced on Thursday that they will strictly limit its local citizens from going abroad in an attempt to prevent people brining the virus into China.

In terms of commodities, brent crude price ticked up slightly to $109.81 per barrel. Gold is set to face fourth consecutive weekly fall as its prices remained near a three-month low on Friday, declining to as low as $1,810.27 per ounce. Global wheat production is set to fall for first time in four years as Ukraine’s output is forecasted to drop by more than a third caused by the continuation of the war. On the other hand, the cryptocurrency industry was hit on Thursday when the stablecoin Tether, tumbled to as low as $0.9511, below the $1 peg as it failed to maintain its link with the greenback.

EURUSD charts (2022.5.13)

Figure 1 (Source: IS Prime) EUR/USD daily: The currency pair is looking to test the 2017 low (1.034) as it depreciated for the fifth consecutive week. It may continue to go lower ahead of the next FOMC meeting in June as the central bank is looking to hike the rate further by 50bps.

Headliner to Review

  • UK preliminary GDP figure came out to increase by 0.8% in Q1 2022, slightly lower than the forecasted figure of 1%, but are doing better than their counterparts including both the Euro area and the U.S., in which their Q1 GDP figure registered at 0.2% and -0.35% respectively.
  • April 2022 PPI in the U.S. were up 11% on the year and 0.5% since last month, the annual rate is above economists’ expectations which indicates the overheated U.S. economy continues to suffer from inflation. Rising food and energy prices are the main drivers of the increase of such wholesale prices.

Headliner to Watch

  • The Chinese retails sales figure is due to release next Monday. In the previous month, it contracted by 3.5% year-on-year as the regional pandemic lockdown weighs on the economy.
  • The Japanese monthly PPI figure is also due to announce, previously it rose substantially by 9.5% as inflationary pressure continue to persist among the local economy.

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Authors:
Antony Tan
Kerry Man