Investment Update — May 2022
Assets endured another poor month in April, as most major assets delivered negative returns. Indeed, the Nasdaq registered its worst monthly performance since October 2008, which led the major global equity indices lower. Chinese stocks rallied towards the end of the month on rising expectations that policymakers will increase stimulus and relax regulation to jump start their economy, which has been impacted by COVID lockdowns. The situation in Ukraine continues to pose a threat to commodity supplies, and despite China’s economic woes the war remains a potential source of risk to commodity prices.
Clouding the inflation outlook was news that US core inflation (inflation excluding food and energy) rose by less than expected in March, fuelling hopes that US inflation may have peaked. At its May meeting, the Federal Reserve raised US interest rates by 0.50% and is expected to follow up with further 0.50% hikes in June and July later this year. In the press conference that followed the meeting, Jerome’s Powell’s comments eased investor concerns of a more aggressive tightening path as he ruled out the prospect of a 0.75% increase at future meetings. Financial markets responded positively with treasury yields and the dollar falling, and the S&P 500 and Nasdaq rising 3%. The Reserve Bank of Australia and The Reserve Bank of India also announced rate rises, both of which were unexpected by markets.
The Bank of England has raised interest rates, although the weaker growth outlook for the UK economy means the Bank adopted a more cautious tone. UK consumers are facing increased taxes and higher energy bills, while inflation is set to remain higher in the UK than other economies. The energy price shock is also expected to weigh on consumer spending and business investment in the coming months.
Although a global recession has not yet occurred, global growth forecasts have been revised down in recent weeks. Much will depend on whether Central Banks can lower inflation without killing economic growth.
If you have any questions, please don’t hesitate to contact us.
Head of Investment, Skerritts
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