Please see investment bulletin below from Brooks Macdonald received this morning – 22/04/2022.
What has happened
US equities came under pressure late in the US session as further incremental tightening of monetary policy was priced into the bond market. Given its rate sensitivity, growth equities underperformed with the US technology market posting another loss yesterday after the Netflix earnings soured Wednesday’s trading session.
Central banks
Fed Chair Powell stuck to the Fed’s recent script, saying that the Fed was considering 50bp rate hikes to front end load the monetary policy tightening required to get inflation under control. Yesterday also saw President Daly and President Bullard both describe the need for 50bp rate hikes at upcoming meetings given the economic backdrop. The market is now expecting 50bp hikes at each of the next three Fed rate setting meetings. President Lagarde of the ECB also spoke on the same panel as Powell yesterday and whilst she stressed that the US and European economies were in very different places, Lagarde would not rule out an ECB rate hike as early as July which is the meeting hinted at by other ECB speakers this week. This backdrop catalysed a selloff in sovereign debt with the US 10-year Treasury yield closing above 2.9%, reversing the falls seen on Wednesday. It is increasingly clear that the Fed is keen to normalise rates sooner rather than later, before the Fed or the market truly knows what the post pandemic pace of economic growth and inflation is. This brings with it significant policy risk.
French election
This weekend sees the French presidential election run-off vote between President Macron and Marine Le Pen. Over the last week or so the gap between the candidates has increased with President Macron holding a polling lead of c. 10 points, outside the margin of error. The polling success for the incumbent has settled some of the fears earlier in the month that there could be a political upset spurred by the cost of living crisis in France. French government bonds and equities outperformed as yesterday’s polls reconfirmed the lead.
What does Brooks Macdonald think
Whilst polling suggests that a French electoral upset will be avoided, yesterday saw reports that the UK government is preparing legislation to give ministers the power to switch off key parts of the Northern Ireland protocol. Such legislation, if enacted, would lead to further confrontation between the EU and UK even as NATO allies pose a united front in the face of the Ukraine war.
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Charlotte Clarke
22/04/2022