Market update – April 2022

The news in 2022 has so far been dominated by Russia’s invasion of Ukraine. The grave human implications fed through into markets, with equities declining and bond yields rising (meaning bond prices fell). Commodity prices soared, as Russia is a key producer of several important commodities including oil, gas and wheat. This contributed to a further surge in inflation as well as additional supply chain disruption.

In the US, the Federal Reserve (Fed) raised the key federal funds rate for the first time since March 2018 in a move designed to curb inflationary pressures. The members of the Federal Open Market Committee (FOMC) implemented an increase of 0.25 percentage points at their March meeting, taking its key rate to a target range of 0.25% to 0.50%. The FOMC also flagged the strong likelihood of further increases, with an expectation that the federal funds rate will reach almost 2% by the end of 2022.

CPI in the US rose to 8.5% in March, its highest level since July 1981, with existing inflationary pressures likely to be exacerbated by the situation in Ukraine, soaring energy costs and ongoing pandemic-related supply chain disruptions. Looking ahead, the Fed predicts that the rate of inflation will remain high this year, although current levels are expected to moderate to 4.3% by the end of the year. Fed Chair Jerome Powell remained optimistic about economic prospects for the US, saying: “The American economy is very strong and well positioned to handle tighter monetary policy”.

The Dow Jones index fell around 5% in the first quarter of 2022, with the technology-focused NASDAQ index falling around 10%.

In the UK, The Bank of England raised interest rates by 0.25 percentage points for a second consecutive month in March, bringing the base rate back to the pre-pandemic level of 0.75%. UK CPI reached a fresh 30-year high of 7.0% in March. The Office for Budget Responsibility (OBR) has downgraded its UK growth forecast for 2022 from 6% to 3.8%, with growth of 1.8% forecast for next year and 2.1% for 2024. The FTSE100 index finished the quarter around the same level as the start of 2022 but the FTSE250 index declined around 5%.

The Eurozone has close economic ties with Ukraine and Russia, particularly when it comes to reliance on Russian oil and gas, and Eurozone shares fell sharply in the first quarter. Data showed annual eurozone inflation at 7.5% in March, up from 5.9% in February. In response, the European Central Bank (ECB) outlined plans to end bond purchases by the end of September and indicated that a first interest rate rise could potentially come this year.

Share prices in China were also sharply lower in the first quarter, as the number of Covid-19 cases spiked to their highest level in more than two years, despite the Chinese government pursuing one of the world’s strictest virus elimination policies. The city of Shanghai, China’s financial capital with a population of 25 million people, went into a partial lockdown in a bid to curb a surge in Omicron cases, prompting fears that other parts of the country could follow.

Japan posted its first calendar year of positive economic growth since 2018. The country’s economy expanded by 1.7% over 2021, growing at an annualised rate of 5.4% during the fourth quarter following a reduction of 3% in the third quarter. The Nikkei 225 index fell by around 5% in the first quarter of 2022.

Closer to home, the Northern Ireland economy grew strongly in the last quarter of 2021. Economic output grew by 1.2% from the previous quarter and by 4.9% from the previous year, according to the NI Statistics and Research Agency (NISRA), with economic output now at a 13-year high.

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