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The Long and Short of it, week ending 01 April 2022

Posted: 04 April, 2022

Topic: Telecoms , Financials , Basic Materials , Energy , Healthcare , Industrials , Technology

U.S. stock markets moved slightly higher last week moving higher the first two days of the week on rising hopes of a Russia-Ukraine ceasefire, falling the next two days as hopes faded and then slightly increasing Friday on the back of an overall stronger-than-expected Non-Farm Payroll Report. Ceasefire hopes and Chinese Covid-related lockdowns helped move oil prices lower Monday and Tuesday, supporting stock prices, while rising oil prices Wednesday (on fading ceasefire hopes) pushed stock prices lower. President Biden’s announcement the U.S. would release 1 million barrels/day from the SPR for the next 6 months (beginning May) drove oil prices 7% lower but failed to push U.S. stock markets higher. Thursday’s PCE Price Index release (the Fed’s preferred inflation measure) showed continued elevated price pressures perhaps pushing stock markets lower due to increasing expectations of a more aggressive Fed. Quarter-end rebalancing and fading Russia-Ukraine ceasefire hopes may also may have helped moved markets lower. Friday’s Non-Farm Payroll showing strong job gains along with a decline in the unemployment rate to close to pre-pandemic levels also showed strong wage growth, capping stock market gains and causing the 2-year Treasury yield to rise above the 10-year Treasury yield for the first time since 2019. 10-year inflation expectations fell 16bps last week (perhaps because of falling oil prices) while 10-year real rates increased 6bps resulting in 10-year Treasury rates falling 10bps over the week. At week’s end, the S&P 500 Index increased 0.1% to 4,545.86, the Nasdaq Composite Index rose 0.7% to 14,261.50, the Dow Jones Industrial Average decreased 0.1% to 34,818.14, the 10-year U.S. Treasury rate fell 10bps to 2.39% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) weakened 0.2%.

European stock markets somewhat followed U.S. stock markets last week, rising early in the week on RussiaUkraine ceasefire hopes and then giving up some of those gains as hopes faded. The FTSE 100 Index’ larger exposure to mining and oil stocks helped mute daily moves with negative effects of rising oil prices and metals softened by gains in these stocks and vice versa. Euro zone energy shortage concerns, compounded by Russian President Putin’s renewed demand gas and oil payments be made in roubles, soured investor sentiment, pushing stock prices lower despite significantly lower oil prices resulting from expectations of a large U.S. release from the SPR (which was indeed announced Thursday). Markets moved higher Friday despite record euro zone inflation, perhaps benefiting from Friday’s stronger-than-expected U.S. Non-Farm Payroll report. The 10-year UK government rate fell 9bps last week (perhaps due to significantly lower oil prices) and the 10-year Bund rate was unchanged. At week’s end, The FTSE 100 Index increased 0.7% to 7,537.90, the STOXX 600 Index rose 1.1% to 458.34, the 10-year UK government rate decreased 9bps to 1.61%, the Euro strengthened 0.5% and the British pound weakened 0.6%, both with respect to the U.S. dollar.