It was a challenging week for markets across the world with many different factors affecting sentiment. Covid-related lockdowns in China has led investors to worry about the economic fallout China and supply chain consequences globally. In Europe, Macron’s victory provides some continuity in France and in the UK, the latest economic data reinforced a picture of stuttering economic growth.
Last week’s performance – major stock markets
|Euro Stoxx 50
US: Business activity slows but remains strong
Companies in the communication services suffered the most, with Netflix down 35% over the week as the company reported disappointing quarterly results. On the economic front, preliminary data for the manufacturing and services sector suggested that growth in business activity slowed in April but remained strong. Meanwhile the Federal Reserve, the US central bank, continues to make remarks that it would continue raising interest rates this year, and that it may do so more quickly.
Japan: Weakening currency and economy shows signs of pick-up
Japan’s stock markets rose modestly over the week. Inflation in Japan is lagging the rest of the developed world and remains the key reason why its central bank continues to be very supportive of its economy. The Japanese yen weakened to around two-decade low against the US Dollar: a weaker currency tends to benefit the economy by boosting the value of companies’ overseas earnings. The Japanese economy is showing signs of picking up as the severe coronavirus situation is easing.
China: Economy grows more than expected but lockdowns hamper sentiment
Chinese markets slid as investors worried about the economic fallout from coronavirus lockdowns. China’s economy grew at a stronger-than-expected 4.8% pace in the first three months of the year compared to a year ago, up from 4.0% at the end of 2021. However, the International Monetary Fund cut China’s 2022 growth forecast in its latest outlook and warned that China’s economy could slow more than currently projected and have supply chain consequences for Asia and beyond.
Europe: Central bank becomes more ‘hawkish’ and Macron triumphs
Shares fell amid ongoing concerns about the war in Ukraine and increased hawkishness of the central bank. When a central bank is ‘hawkish,’ they are in essence considering raising interest rates to combat inflation. Business activity accelerated in April, driven by quicker growth in the services sector as economies emerged from lockdowns. Emmanuel Macron’s election victory will mean continuity in economic and foreign policy and will come as a relief to investors and to the EU and NATO allies.
UK: Retail sales, consumer confidence and business activity in the limelight
Storm clouds gathered over the UK economy, with falling high street sales (retail sales fell in March), plunging consumer confidence (which has fallen to a near all-time low due to soaring cost of living) and rapidly cooling business activity (business activity grew at the slowest rate in three months in April). According to the International Monetary Fund, the UK will be the worst performing G7 economy next year with the cost of living crisis and tax increases projected to slow economic activity to a crawl.