May 2022 Global Market Recap

 

1^st May 2022 – 31^st May 2022

FULL REPORT ACCESS LINK: First Plus Market Update May 2022

Macro:

Nonfarm payrolls increased by 428,000 in April, topping consensus of 400,000, and unchanged from March’s amount. The unemployment rate in April also matched the previous month’s revised figure at 3.6%, 0.1% higher than estimates, close to a five-decade low. The consumer price index gained 8.3% year-over-year, surpassing consensus for an 8.1% increase. The inflation gauge fell slightly from March’s figure of 8.5% but remains close to the peak of four decades. Retail sales increased 0.9% in April, matching consensus but lower than March’s revised figure of 1.4% - a pace faster than the 1.2% inflation reported during March, indicating that economic slowdown is not so severe as previously reported. Even after taking into consideration a 0.3% inflation month-over-month in April, consumer spending has risen. Robust consumer spending, aided by a strong labour market has lowered the risk of a recession, but is also causing U.S. central bankers to keep a close eye on monetary policy.

 

China's April economic data fell short of market expectations owing to the COVID-19 situation. In April, industrial productions decreased 2.9% year on year, in contrast with expectations for a slight increase of 0.4% as anti-virus measures snarled supply chains and paralysed distribution. According to the National Bureau of Statistics, national fixed asset investment from January to April grew 6.8% year on year, slightly below market consensus of 7%. Retail sales fell by 11.1% in April compared to the same month last year, the lowest level since March 2020. Shanghai and Beijing recorded a dramatic year on year drop of 48.4% and 16.2%, respectively. The jobless rate increased to 6.7% in April from 6% in March, surpassing the 2020 peak of 5.9%. China's exports increased by 3.9% in April, while imports were unchanged from the previous year. The headline CPI increased from 1.5% in March to 2.1% in April, exceeding forecasts for three months in a row. CPI rose 0.4% over last month, faster than a five-year average of -0.2% for April, owing to higher logistical costs and boosted stockpile demand caused by Covid control in China.

 

Stocks:

In the final week of May, the three main US equity benchmarks put a halt to their longest consecutive weekly declines in recent decades. The S&P and the Nasdaq endured seven straight weekly drops beginning in April, the lengthiest since the bursting of the dot-com bubble, while the Dow's eight-week continuous fall was the most drawn-out in 90 years. Stock prices of major retailers like Walmart and Target sank heavily after announcing dismal quarterly earnings results due to inventory write-downs, disrupted supply chains and inflationary pressures. On a monthly basis, the S&P 500 and the Dow traded sideways during May, while the Nasdaq Composite fell by 2.1% in the same period, due to uncertainties regarding economic slowdown.

 

Despite the sluggish performance of the US and other international markets, the A-share market held up well. Though domestic economic data was negatively affected by both internal and external factors in April and May, the significant easing of the pandemic in Shanghai and other cities has prompted a gradual resumption of work and production, reducing market fears about economic growth.  The government has accelerated unveiling stabilization policies since the meeting of the Politburo of the Communist Party of China (CPC) Central Committee at end-April. Most major indexes registered gains. The SHCOMP rose 4.6% in May, the CSI 300 gained 1.9%, and the ChiNext Index rose 3.7%. Average daily turnover stayed at a low level of Rmb832bn for the last five days of the month.

 

Rates:                                                                        

The 10-year U.S. treasury yield increased by 2.17bps during the month, easing slightly from its top of 2.97% on May 17, the highest since December 2019. Earlier in the month, the US Federal Reserve raised the benchmark interest rate by 50bps, in line with market expectations. This rate move is the largest since 2000 and is in response to the rising inflation pressures. The Fed also signal that they are likely to make similar increases in June and July. The market expects U.S. central bankers to hike interest rates to 2.5%-2.75% by year’s end, but the Fed has also indicated it is willing to exceed this range depending on market dynamics. The People’s Bank of China lowered the five-year loan prime rate from 4.6% to 4.45% while keeping the one-year loan prime rate unchanged at 3.7%. The one-year medium-term lending facility was kept unchanged at 2.85%. Foreign outflows from Chinese bonds reached a record in March as China’s yield premium over the US disappeared. The European Central Bank has indicated that they are likely to start raising interest rates in July and exit the sub-zero territory by the end of September.

 

Credit:

Treasuries, global credit and emerging market bonds have all gained in May. Global investment grade debt returned almost 1% in May, the first monthly gain since July while US Treasuries are heading for their best month since November, as reported by Bloomberg. The decline in corporate bond issuance has been particularly strong in the high-yield market. Just US$13.2 billion priced from the beginning of April to late May, according to Goldman Sachs data, down 70% year over year. China’s loan growth weakened sharply in April to the worst level in almost five years, with mortgage loans contracting again as Covid lockdowns and the property market slump disrupted economic activity and sapped borrowing demand. Chinese banks are overflowing with cash as borrowers have been reluctant to boost credit due to the Covid lockdowns and economic uncertainty.

 

FX:

The Dollar Index fell by 1.8% in the month with similar levels last seen back at the end of 2002. The dollar index fell as traders pared expectations for the Fed’s interest rate hikes and as improving inflation and consumer spending data eased recession fears. The Euro appreciated by 2.2% in the month as ECB’s President revealed that she expects net purchases under the APP program to end very early in the third quarter, which would allow the ECB to raise rates at the July meeting and exit negative rates by the end of third quarter. The Japanese Yen appreciated by 1.7% in the month while the AUD appreciated by 1.1% as well. The onshore and offshore Chinese Yuan depreciated by 0.7% and 0.3% respectively. Since the middle of April, the Yuan has depreciated ~4.8% against the Dollar The country witnessed record outflows from Chinese bonds in February and March. So far, the only sign that the PBOC might be uncomfortable with the Yuan's recent decline came in late April, when it reduced the amount of foreign exchange that banks must hold in reserves from 9% to 8%.

 

Commodities:

Brent crude and WTI oil prices surged by 12.3% and 9.5% respectively during the month of May, both rising for the sixth consecutive month, as China relaxed coronavirus controls and European Union members meet to discuss a plan to ban Russian oil imports. However, the European Union nations cannot reach an agreement on new sanctions against Russia because of opposition from Hungary, Slovakia, Bulgaria and the Czech Republic. Hence, the latest sanctions will only include ban on Russian seaborne oil-related imports and not oil delivered via pipeline. U.S. gasoline jumped 16.1%, increasing by greater than 50% compared to a year prior. Natural gas prices surged 10.6% as Russia stopped gas exports to Netherlands and Denmark, after the two countries rejected Russia’s requirements to make payment in rubles. The price of corn fell 10.9% in May to the lowest in 2 months after national statistics indicated that corn seeding in the U.S. grew at a steady pace and have reached a completion rate of 86%. Bitcoin plummeted 17.6% during the same period, having fallen for 8 straight weeks, due to tightening monetary policy and surging inflation.