Financial week in a glance: key trends

US stocks posted a fifth straight losing week, their longest streak of declines in more than a decade, after a strong jobs report on Friday added fuel to concerns about surging inflation. The benchmark S&P 500 Index closed down 0.6% to bring its weekly loss to 0.2%. It hasn’t fallen for five straight weeks since 2011. The Dow Jones was slightly better at -0.3% whilst the NASDAQ fell another -1.4% following the -5% decline on the Thursday. As such, US markets are now down between -16% (S&P) and -30% (NASDAQ) for the year.

Nine of the 11 major industry groups were lower, with the materials, communications services and consumer discretionary sectors leading losses.

Continued strength in the oil price pushed the Energy sector to the top of the leaderboard with a +2.9% gain and Utilities was the only other sector in positive territory (+0.8%), third best being Consumer Staples which was flat on the day. Brent oil closed above $110 for the first time since mid-April in advance of the OPEC+ meeting on Thursday considering supply pressures and the potential threat to ban Russian supplies this year.

Materials (-1.4%), Consumer Discretionary (-1.3%) and Communication Services (-1.3%) were the three worst performing sectors.

Euro weakness is jeopardising price stability in an environment where inflation is not only higher but more broad based. Energy transition is adding a more structural component to energy price inflation and it would not be realistic to expect wages to remain subdued in that scenario.

Asian equities were weaker overnight with China the only market in positive territory while Hong Kong was closed for holiday.

European and UK markets are also softer today (both trading down around -1.5%) and US futures are pointing to a negative open.

The Bank of England voted to increase the benchmark interest rates by 0.25% to 1%, the highest level since 2009 marking a fourth increase with three policymakers voting for a 50 basis point hike and six for a quarter point increase. The Pound slumped in response, falling more than 2% against the Dollar as investors began to look towards a potential recession in 2023 and that inflation may be above 10%.

Despite the obvious negative risks, it should be noted that any easing of China’s Covid lockdown, or steps towards peace and de-escalation in Russia, would materially benefit the economy and financial assets as it would take the pressure off Central Banks and the economy.

A deal bringing Iran and Venezuela in from the cold would also help oil prices lower and free up liquidity in stressed markets, although this is an extremely politically sensitive issue and we continue to monitor talks after the US held a hushed meeting with Venezuelan President Maduro in March.

In the interim having exposure to commodities, gold and equity value plays will outperform and help mitigate some of the volatility we are seeing in markets.

Some of the main moves in markets:

Stocks:

• S&P 500 futures fell 0.90% as of 7.12 am in London. The S&P 500 fell 0.60% on Friday
• Nasdaq 100 futures slid 0.90%. The Nasdaq 100 fell 1.20% on Friday
• Japan’s Topix Index lost 2.00%
• Australia’s S&P/ASX 200 Index shed 1.20%
• South Korea’s Kospi Index fell 1.30%
• China’s Shanghai Composite Index declined 0.40%
• Euro Stoxx 50 futures fell 1.20%

Currencies:

• The Bloomberg Dollar Spot Index rose 0.50%
• The Euro was at $1.0510, down 0.40%
• The Japanese Yen was at 131.07 per Dollar, down 0.40%
• The offshore Yuan was at 6.7567 per Dollar, down 0.60%

Bonds:

• The yield on 10-year Treasuries rose about one basis point to 3.14%
• Australia’s 10-year yield rose nine basis points to 3.56%

Commodities:

• West Texas Intermediate Crude shed 0.40% to hit $109.30 a barrel
• Gold was at $1,871.97 an ounce, down 0.60%