Investors balancing risks of rising rates, slowing growth, and Chinese Covid resurgence once again hitting supply chains.
- The ECB’s talking tough
- Recession risk rising?
- When the chips are down…
- Can ESG continue to perform?
US:
| S&P 500 is down about 3.7% MTD and about 16.5% YTD | Nasdaq is down 7.3% MTD, but over 27% YTD | Dow Jones is down over 2.6% MTD, over 11.5% YTD |
Europe:
| Stoxx 600 is down almost 3.5% MTD and over 11% YTD | DAX is up about 0.2% MTD, but down over 1% YTD | CAC40 is down over 3% MTD and down over 11% YTD | IBEX35 is down about 3% MTD and about 1.5% YTD | FTSE MIB is down almost 1% MTD and over 12% YTD | FTSE100 is down about 0.1% MTD and about 2% YTD |
Global:
| MSCI World Index is down about 3.5% MTD and almost 16.5% YTD. | Hang Seng is down over 4.5% MTD and 14% YTD |
Tough talking. The ECB has virtually declared its first rate rise in July, as ECB President Christine Lagarde suggested two successive 25 bps rate rises while other members are pushing for 50 bps. The prospect of the end to negative interest rates by Q3 helped the Euro gain back some ground this week to reach over $1.06.
Will the capex cycle hold? Below expected core capital goods orders (only 0.3% in April vs 1.1% in March and up over 10% y/o/y) leaves investors worried that business investment may be starting to fall due to rising interest rates and tightening financial conditions thereby reinforcing recession risk in the US for 2023. Inflation-adjusted GDP decreased at a 1.5% annualised rate in Q1, compared with an initially reported 1.4% decline. Consumer spending, which accounts for the majority of the economy, grew an upwardly revised 3.1%.
Less than chipper chipmakers. Chipmaker Nvidia stock dropped on Wednesday due to continuing supply chain problems with China and events in Ukraine. This reflects the overall situation for semiconductor makers with Marvell Technology and other tech “growth” stocks feeling the pain over fears rising rates and slowing growth will negatively impact these companies if consumer demand falls. According to Bloomberg, the Philadelphia Stock Exchange Semiconductor Index is down 27% this year compared with an approximately 17% decline for the S&P 500.
The truth and nothing but the truth. The US SEC has put forward rule changes about what can actually be labelled ESG in an attempt to avoid unfounded claims by funds on their ESG credentials and require more standard reporting of such disclosures. This comes on the heels of shareholders of big oil players Chevron and Exxon voting not to require more stringent action on addressing emissions from consumers burning its fuels and shareholders at Amazon also voting against each of 15 investor-led resolutions that challenged the company's labour policies.The ESG market is worth about 30% of global AUM and is predicted, according to Bloomberg Intelligence, to grow to $41 trillion by 2022 and $50 trillion by 2025. ETFs like iShares ESG ETFs are one of the many instruments investors have used to enter this fast growing market.
Key data to look out for this coming week
In Europe: The EU leaders summit on Monday and Tuesday may influence EU gas prices if a resolution to ban Russian energy is agreed, Eurozone Business climate and consumer confidence data on Monday will likely show some shakiness, Eurozone HICP on Tuesday will give a good idea of just how bad inflation is hitting consumers, and Eurozone unemployment data on Wednesday may help clarify just how much wiggle room the ECB has.
In the US: Core personal consumption price index (a gauge of inflation) on Friday will be a key focus for the Fed while markets will be attuned to the Michigan Consumer Sentiment Index on Friday and Conference Board Consumer Confidence data on Tuesday as well as the Fed’s Beige Book, which gives an overall picture of economic growth and ISM Manufacturing PMI on Wednesday and ADP employment change on Thursday to see if recent announced cuts in earning forecasts by key retailers like Walmart is resulting in layoffs.
OPEC is meeting on Thursday so expect some further noise in energy markets.
Please remember Monday, 30 May, is Memorial Day in the US and markets there will be closed.
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