Market Commentary – April 2022

The IMF’s title of the April 2022 World Economic Outlook, leaving us in no doubt the invasion of Ukraine contributes to the downward revision of global growth. The facts of the war have not changed: Russian forces are still invading and Ukraine is still resisting, fuelling our lack of surprise on the growth picture, as well as still-rising inflation. Fuel and food prices continue to increase, with China’s COVID-19 lockdowns further adding to the strain on supply chains.

Although some of the disruptions to trade caused by the pandemic are starting to ease, some significant headwinds to global trade remain. The slowdown in Chinese economic growth continues to act as a drag. Such that, the World Bank reduced its forecast for global growth to 4.1% for 2022 and 3.2% for 2023, “as pent-up demand dissipates and as fiscal and monetary support is unwound across the world” while the IMF cut its forecast to 3.6% for both years, from 4.4%.  

UK set to be slowest growing economy in G7

In April, mounting evidence made it clear the shine has come off the UK’s economic recovery from coronavirus. Last year, the UK was the fastest growing economy of the G7 group of western countries and is now predicted by the International Monetary Fund (IMF) to be the slowest in 2023, with the expectation UK growth will fall to 1.2% in 2023, a near halving of the 2.3% previously predicted.

Plunge in UK consumer confidence

UK consumer spending has slowed sharply due to the fall in retail sales and plunge in consumer confidence. While the price of daily essentials increases and household budgets come under increasing pressure, lack of confidence is hardly surprising and should prompt worries for both the Bank of England and the Government. Consumer spending was expected to be the main driver of economic growth for 2022 year of which there is now a dramatic U-turn. UK business confidence is still down, indicating the pandemic recovery is far from over, with rising costs a considerable worry for many businesses. 

New car registrations at all-time low while shares are up

The number of new cars registered in the UK in March fell to the lowest level in 24 years, with a noticeable drop of 14%, compared to last year, due to the shortage of microchips. The rising cost of living as also been blamed for low sales. The shortage of cars is proving a bonus however for car dealerships. Although overall sales are down, higher selling prices have helped protect profits and shares in Lookers, Pendragon and Vertu Motors are up between 20% and 40% over the last year. Chip shortages and changing demand mean we will be further ‘watching this space’ for potential major changes to global car manufacturing.

The first of US interest rate rises

US Federal Reserve Chair, Jerome Powell, indicated there would be a rise in interest rates, and duly followed with a raise by half a percentage point to tackle high levels of inflation, the largest hike since 2000. More rate rises in the US are expected, with the Economic Intelligence Unit expecting seven over the course of 2022. 

Reticent UK and EU due to risk of recession 

Bank of England Governor, Andrew Bailey, and European Central Bank (ECB) President, Christine Lagarde, took a more moderate view on interest rises amid greater concern of the risk of economic recession if interest rates are raised too quickly. However, rates went up a quarter percent in the UK to 1%, despite this, showing the concern over inflation is not completely overshadowed. Lagarde said the ECB’s more cautious approach is due to Europe facing increasing risks to growth and that price pressures largely stem from supply-related constraints. However, the markets now expect the ECB will increase interest rates at a faster pace going forward. 

Europe “entering a difficult phase”

In Europe, inflation rose to 7.5% in March, up from 5.9% according to the ECB. The main contributor coming from the increase in energy prices, up by almost 50% as the conflict in Ukraine continues to add upward pressure to costs. Europe relies heavily on oil and gas from Russia, which is why the region is so impacted. ECB’s Christine Lagarde suggested Europe was “entering a difficult phase” due to the increase in living costs and it will be interesting to see how they respond with regard to interest rates in response to the inflationary pressure.

UK index benefits from rise in fuel and energy

UK equities have been the best performing developed equity market so far this year with a rise in value in the first quarter of the year, despite rising inflation. The war in Ukraine and surge in COVID-19 infections have caused significant volatility, but the UK index has benefited from the performance of large oil and gas producers on the back of the sharp rise in energy prices. UK banks have also fared well, as rising interest rates usually bring rising profits. However, this positivity is not a feature of all UK equities, rising fuel costs and uncertainty over travel restrictions have weighed heavy on travel and leisure stocks, and the rising cost of living has hurt the price of consumer discretionary companies. 

US Federal Reserve plan to reduce the balance sheet

The US Federal Reserve’s monetary policy meeting revealed it is “generally agreed” they will sell up to $95 billion of government bonds a month, as the central bank targets a $1 trillion reduction on its balance sheet over the next year, swelled due to the buying of assets to boost the economy during the pandemic. 

Mixed fortunes in US tech stocks 

The tech-focused Nasdaq index has lagged the broader S&P 500 index over the last 12 months as stocks like Netflix and Zoom have struggled to hold on to pandemic-era growth. Even established tech giants, like Amazon, have seen share prices lag. Apple and Tesla, however, appear able to use their pricing power to protect profits, even while supply-chain disruptions push up costs. 

Netflix’s struggle to attract and keep customers

Netflix subscriber numbers have plummeted during the first quarter of this year, losing the streaming service 200,000 subscribers, and 40% of its market value, warning it could lose up to two million more in the second quarter due to the rising cost of living and fierce industry competition. The end of a decade of rapid growth has clearly arrived for Netflix, after being supercharged by the pandemic, with shares falling 68% since their peak in November. 

Asset ClassProxy1-Month3-Month6-Month1-Year
CashUT Cash/Money Market  00.04%  00.06%  00.04%  00.02%
Gilts FTSE Gilts All Stocks -03.00% -06.32% -09.28% -08.26%
UK Corporate BondsUT UK Fixed Interest -04.24% -07.95% -10.51% -04.98%
Intl BondsUT Intl Fixed Interest -01.70% -03.95% -05.18% -04.49%
UK EquityUT UK Equities -01.26% -04.17% -05.68% -01.06%
European EquitiesMSCI Europe ex UK -01.98% -04.95% -08.23% -00.68%
US EquitiesS&P 500 -05.11% -02.22% -02.44%  08.98%
Japanese EquitiesMSCI Japan -03.47% -03.88% -09.67% -04.49%
Emerging Markets EquitiesMSCI Emerging Markets -01.76% -04.12% -06.47% -09.93%
PropertyUT Property  00.07%  03.03%  03.38%  12.84%

Data Sourced from FE Analytics, and Bloomberg Finance LP.

*The value of your investment can go up as well as down, you may get back less than you originally invested. Circumstances are subject to change. Performance from the past or yields quoted should not be considered as reliable indicators of returns. This communication is for general information only and is not intended to be individual advice