The week in review

What’s happened in markets?

The week of 4 April saw the release of the final purchasing managers’ (PMI) index data for March. With the final Eurozone services PMI revised upward slightly to 55.6, the final Composite PMI for March was calculated at 54.9 – slightly higher than the preliminary figure. The UK’s final services PMI for March was also released and – at 62.6 – had been revised higher from the preliminary 61 figure.

The US figure, meanwhile, was revised slightly lower to 57.7 in March from its 58.5 preliminary reading, but was still up from the 55.9 recorded in February. It still underlined the fastest rate of growth since July 2021, signalling a sharp expansion in business activity across the private sector.

In politics and policy, the dominant news story was the increasingly hawkish policy signals from the US central bank’s meeting on 15 and 16 March 2022 as it seeks to put in place proactive measures to tackle inflation. The Federal Reserve (Fed) suggested it will likely start culling assets from its US$9 trillion balance sheet at its meeting in early May and will do so at nearly twice the pace versus its previous quantitative tightening exercise as it confronts inflation running at a four-decade high. Ten-year US yields climbed through 2.75% for the first time since March 2019, as investors priced in the impact of the Fed’s plan and accelerating inflation.

In corporate news, Elon Musk acquired a position in Twitter equating to a 9.2% stake, making him the largest shareholder. He was also invited to join the board, although Twitter’s chief executive, Parag Agrawal, subsequently flagged Musk had declined the offer. This is thought to be because had he taken up this position, his stake in the company would have been capped at 15%.

March saw world food prices jump 12.6% compared month on month with February, marking a record high increase. This was down to the fact that Russia and Ukraine together account for more than a quarter of the world’s wheat. The countries are also key suppliers of barley, sunflower seed oil and corn. The expected shortages will prove to be especially problematic for developing and poorer countries, where a large proportion of disposable income is spent on food.

The US Senate voted 100-0 in favour of terminating normal trade activity and banning Russian oil imports. Despite this and other sanctions, the Russian ruble is now at levels higher than those seen before the Ukraine invasion took place.

Developed markets (+4.8%) outperformed emerging markets (+3.6%) over the previous 30 days, as well as over the longer term. In terms of style, growth stocks (+4.7%) performed in line with value stocks (+4.7%) over the last 30 days, while small capitalisation stocks (+2.2%) underperformed large capitalisation stocks (+4.9%).Healthcare (+10.2%) was the best performing sector, while industrials (-0.6%) was the worst, again over the previous 30 days. Bonds remain significantly volatile with longer-term issues lagging on the back of a the 2s/10s yield curve that has been steepening, with the 10-year yield standing 18.8 basis points higher than the yield of two-year notes on Friday.

What’s happened in portfolios?

In terms of equities, our FTSE 100 and UK dividend stocks positioning worked well for us and fared well given their greater exposure to material and energy. What’s vital here is also what we don’t currently have exposure to, for example, equities and stocks at the growth end of the market.

When it comes to fixed income, our short duration position continues to help relative performance, with lower sensitivity to the increasing interest rates benefitting returns.

Real assets, overall, are providing a good level of diversification in what has already been a fairly volatile year. Real assets perform well in more inflationary environments and they offer a good degree of inflation protection, particularly when it comes to, for example, renewables, which are of course linked to energy prices.

What’s happening this week?

12 Apr • US Consumer Price Index | 13 Apr • UK Consumer Price Index | 14 Apr • US Retail Sales