Market Commentary - May 19, 2022

The rebound of the U.S. equities on Tuesday has proved to be short-lived, as the whole markets encountered deep sell-off on Wednesday with nearly 98% of shares in the S&P 500 declined at the market close. It has suffered the sharpest fall since the early months of the pandemic, in which both the S&P 500 and Nasdaq indices dipped significantly by over 4%. Such broad-based sell-off was led by the weak earnings reports from consumer related stocks including the retailer Target, in which its share price plummet 25% as higher costs hit their profit margins, with the company’s share made its worst daily decline since 1987. Investors are simply panicked by the lackluster quarterly reports and cut their positions in fear of economic slowdown.

Across the Atlantic, European stock markets suffered as well, led by declines in technology stocks amid worries on higher inflation. The newly released UK inflation data is demoralizing as the figure is the highest level on record, further closer to the BoE’s prediction of above 10% later this year. All the major European indices dropped over 1%, including the broad benchmark STOXX 50. On the other hand, Turkey has held up NATO’s plans to let both Sweden and Finland join the military alliance, which cast doubts and obstacles of the two Nordic countries joining the organization swiftly.

Asian markets are negatively affected by the pessimistic sentiment from Wall Street overnight, with practically all the major local markets down on Thursday. Both the Australia’s ASX 200 and Japan’s Nikkei 225 indices dropped 1.55% and 1.79% respectively at the mid-day trading break, while HK’s Hang Seng index slid over 2% with declines led by the tech heavyweight Tencent in which the performance of its first quarter earnings report are dim. In Mainland China, local governments in each city are facing a cash-strapped situation, as they are forced to divert funds to finance mass COVID testing whereas those money should be instead spent on poverty alleviation and infrastructural projects.

Price of oil continue to oscillate in a tight range as it unable to make a breakthrough move in one direction, with Brent crude currently at $110.88 per barrel. The EU has revealed a €210bn plan to end its reliance on Russian fossil fuels by 2027, to gradually transit into green energy. In terms of cryptocurrencies, looks like bitcoin has stabilized at around $29K to $30K, while redemptions in Tether still remain high after traders pulled $7bn from it as nervousness with stablecoin continue to intensify, since there is no guarantee to redeem such coins at par at any time.

Hang Seng Index charts (2022.5.19)

Figure 1 (Source: IS Prime) Hang Seng Index daily: HK’s blue-chip index undergo a volatile trading period in the recent day, still unable to break above 22,000 points but seems to have strong support at 19,000 points, with the tech sub-sector having a strong influence on the performance of the index.

Headliner to Review

  • The newly released UK CPI indicated that inflation has jumped to 9% in the 12 months to April, up from 7% in March which is rising at their fastest rate for 40 years, as higher fuel, food prices and energy bills hit millions of households.
  • According to the Australian Wage Price Index, their wages grew by 0.7% in Q1 2022, smaller than the expected figure of 0.8% and certainly less than half the rate of inflation. However, it won’t stop the central bank raise cash rate again next month.
  • Inflation in Canada has once again surpassed consensus expectations, with the month-to-month CPI increased 0.6% v.s. 0.5% expected and there are no clear signs of slowing pressure.

Headliner to Watch

  • UK retail sales figure due to release on Friday, and it is likely to fall for the third consecutive month with the forecasted figure at -0.3% compared to -1.4% from the previous month.

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Authors:
Antony Tan
Kerry Man