Market Commentary – April 7, 2022

Kevin Jock

7th April 2022

Global equities and government bonds tumbled on Wednesday as the newly released Fed minutes highlighted official’s willingness to tighten monetary policy aggressively, with the Fed’s vice-chair Lael Brainard mentioned a reduction of the central bank’s balance sheet could start in May. The S&P 500 dipped 1%, while the tech-heavy Nasdaq indices dropped 2.22%.

The European stock markets descended 2% yesterday, as investors worried about potentially higher rate hikes than previously anticipated, as well as more sanctions on Russia which could further induce inflation. Both the EURO STOXX 50 and CAC 40 indices shed over 2%. Meanwhile, the U.S. has imposed more severe levels of sanctions, targeting Russia’s largest financial institution including Sberbank, as well as Kremlin officials and their family members such as Putin’s daughters. It seems financial sanctions have been weaponized by the Western nations and opened a new front of the war, we shall see how Russia would retaliate against such measures.

Asian shares retreated on Thursday, in line with the global selloff occurred yesterday, with Japan’s Nikkei 225 index dipped 2% before the mid-day break. Local investors are still monitoring the COVID-19 outbreak situation in China, since Shanghai is under a city-wide lockdown and reported 20K new cases yesterday, most of them are asymptomatic. Likewise, the HK benchmark index dropped over 1% before the mid-day break.

Price of WTI crude has dropped below $100 a barrel as of today, while natural gas prices have climbed to levels not seen since 2008 due to the escalation of sanctions, whereby the EU plan to cut its reliance on Russian gas. Bullion held steady after yesterday’s release of the Fed minutes, as gold still acts as inflation hedge. Meanwhile, Sri Lanka’s rupee has become the world’s worst-performing currency as it has plunged 32% against the greenback year to date. The country is facing a foreign exchange crisis with the government being indebted as well as facing widespread protests.

EURUSD chart (2022.4.7)

Figure 1 (Source: IS Prime) EUR/USD daily: The U.S. dollar has once again rallied against the euro, after the hawkish comments made by the Fed, currently trading at $1.09162. It could remain dominant for now so long as the Fed stays on a hawkish course on rate hikes.

 Headliner to Review

  • The February PPI rose by 1.1% in the euro area compared with January 2022, pretty much in line with the forecasted figure. However, compared with February 2021, PPI increased outrageously by 31.4% due to the surge of commodities, such significant increase could easily be passed on to the consumers.
  • U.S. crude oil inventories came out to be +2.4M barrels v.s. -2.9M barrels expected.

Headliner to Watch

  • Unemployment rate in Canada is expected to narrow to 5.4% from 5.5% in February, which would be the lowest reading since 2019.
  • Italian retail sales are expected to hike by 0.5% on a month-to-month basis.

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Authors:
Antony Tan
Kerry Man