Please see below article received from Brooks Macdonald yesterday afternoon, which provides details economic and market news from their in-house research team.
Bond markets continue to drive equity market volatility as investors position for more aggressive monetary tightening
Last week was dominated by the ongoing bond market selloff as investors position for a rapid tightening in US monetary policy. This concern has also filtered into other global bond markets as major central banks, including the ECB, point to decade high inflation levels and an increased willingness to act decisively. Against this backdrop US equities underperformed, falling just over 1% whilst European equities proved more resilient as investors ponder whether the Euro Area has sufficient economic momentum to allow the ECB to tighten meaningfully.
President Macron’s first round electoral results point to strong support however investors keep an eye on the second-round run-off
Sunday saw a strong result from President Macron in the first round of voting with Marine Le Pen now entering the run off against him in two weeks’ time. The French equity market is seeing some mild outperformance today, reflecting the stronger showing from the incumbent versus ingoing expectations. Of course, the critical question now is which candidate will gather the votes from the supporters of candidates eliminated in round one. Polling suggests a tight run-off between the two candidates, but most polls show Macron ahead with a reasonable margin. Given how significantly the polling has changed over the last two weeks however, this will remain a hot topic for European risk assets.
This week’s ECB meeting may not see any major policy change, but markets will pay close attention to the bank’s tone
Thursday’s ECB meeting is likely to be an eventful one given the recent hawkish position from the European Central Bank. At the ECB’s last meeting in March, they announced a faster reduction in asset purchases than the markets had previously expected. The central question will be whether the bank sees the current guidance as sufficient or if it wants to increase the pace given the uncertainties around inflation levels. With the ink still not dry on the plan to reduce asset purchases, a meaningful change in policy this week is unlikely, however the tone of the ECB’s messaging may take another hawkish step which could create bond volatility.
While the market will need to wait until May for the next Fed meeting, the US CPI data released this week will be a factor in whether the Fed hikes by 25bps or 50bps in that meeting. This week also sees the beginning of the US Q1 earnings season which will give the market a good barometer for corporate health and margins given the current inflation pressures.
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Chloe
12/04/2022