Upbeat end to hectic week, stocks soar
Volatility is relatively low today as we near the close of trading. Equity markets are showing strong gains as bargain hunters have snapped up stocks. This week, markets were plagued by fears of high inflation, worries about more interest rate hikes, and concerns about the ongoing war in Ukraine. The technology sector in the US has been the hardest hit in this round of selling as the industry has relatively high levels of debt and therefore if there are more interest rate hikes, the increased cost of borrowing would hit it hard. Earlier this month, the Federal Reserve hiked interest rates by 50 basis points, and it seems that more hikes are in the pipeline, but traders are divided over what size hikes could we see in the months ahead. This week, the latest US CPI and PPI reports were published, and both came in a touch higher than anticipated, so that fuelled fears the Fed might do another 0.5% lift in quick succession in order to cap the rising cost of living.
In recent weeks we have seen other central banks lift rates including the Bank of England and the Australian central bank, and the timing is not great to say the least in light of the fact the global economy is going down a gear as the post-pandemic boom is fizzling out. The US economy contracted by 1.4% in the first quarter, yesterday it was confirmed the UK economy shrank by 0.1% in March. Next week, the eurozone will post its first quarter growth numbers, and that will be closely watched as there are fears the bloc is edging towards a recession. If economies underperform, an increase to the cost of borrowing will make matters worse. We might have seen large losses during the week, but things are more positive today as the NASDAQ is up over 3%, and the FTSE 100 is up 2.3%.
Gold is a touch lower today amid a muted US dollar. The aggressive risk-on mood in the markets means there is less demand for the yellow metal, although gold’s losses are small due to the fact the US dollar has barley moved. In stark contrast to yesterday, the yen is deep in the red as dealers are rushing to swap lower risk assets for equities.
WTI and Brent crude are in positive territory as OPEC+ confirmed it only lifted output by 153,000 barrels per day, which is very shy of their 420,000 bpd target. The major shortfall in April is keeping prices elevated.