Weekly Wrap
9th - 13th May, 2022

Global markets remained jittery amidst rising risks to global growth. High inflation, policy tightening, Russia-Ukraine war, China’s lockdown and European sanction on Russian energy imports threaten to derail economic recovery. As a result, global stocks and currencies declined. Investors await US inflation data due late in the week. In India, concerns over inflation and fiscal deficit has put pressure on treasury yields and INR. While India’s 10Y yield is currently trading near a 3-year high, INR opened at a record low today. Equity markets too are witnessing a sharp sell-off.

Except Nikkei, other global equities declined. Market sentiments were muted as investors assessed the impact of policy tightening on growth. Shanghai Comp fell by 2.2% as China continued with stringent lockdown measures to curb the spread of Covid-19 outbreak. FTSE fell by 1.5% amidst concerns over recession risks outlined by BoE. Sensex fell sharply by 1.6% dragged lower by real estate and metal stocks. It is trading further lower today, in line with other Asian stocks.

Fig 1 – Stock markets

Concerns over global growth drove global markets. China tightened lockdown restrictions in Shanghai, raising concerns over supply chain issues and demand slowdown. In addition, investors also remain wary of persistently high inflation, Russia-Ukraine war and monetary tightening by global central banks. As a result, the sell-off in global stocks intensified and bond yields slipped. Even in India, inflationary concerns and persistent FPI outflows drove INR to a historic low. Bond yields too continue to remain elevated, though there has been some moderation today.

Global markets extended the sell-off led by concerns around global growth, tighter monetary policy and fears of further spike in inflation. S&P 500 (3.2%) ended at a 1-year low. Sensex (0.7%) too fell led by subdued global cues and was dragged down by sharp losses in consumer durable and power stocks. However, it is trading higher today, while other Asian stocks are trading lower.

Fig 1 – Stock markets

Global markets await US CPI print (est. 8.5% YoY) to gauge Fed’ future policy decisions. Several Fed officials reiterated the need for 50bps rate hikes to tame surging inflation. Thus, DXY index strengthened further to hover around a 20-year high. In China, while CPI inflation inched up, PPI inflation eased to 8% (8.3% in Mar’22) thus leaving room for PBOC to step up support for the economy. In Germany, investor sentiment index improved.

 Global equities ended mixed. Investors keenly await US CPI data. While Dow Jones fell by 0.3%, S&P 500 rose by 0.2%. In Asia, while Hang Seng and Nikkei fell by 1.8% and 0.6% respectively, Shanghai Comp rose by 1.1%. Sensex declined by 0.2% led by losses in metal, power and real estate stocks. However, it is trading higher today, in line with other Asian stocks.

Fig 1 – Stock markets

Global markets reacted to US CPI print which came in at 8.3% for Apr’22 (est.: 8.1%), lower than previous month’s 8.5%, suggesting inflation might have peaked. As a result, global yields fell and dollar retreated (thus lending support to gold). Markets are now not expecting Fed to follow a more aggressive rate hike path. On the domestic front, T-bill rates jumped sharply at the RBI auction, as investors await CPI data (due for release today) for guidance on policy direction.

Barring US and Indian markets, other global indices ended higher. FTSE (1.4%) gained the most led by a gains in mining and energy sector owing to strong earnings report. Positive developments around Covid-19 situation in China boosted investor sentiments. On the other hand, Sensex (0.5%) ended in red and was dragged down by technology stocks. It is trading further lower today, while other Asian stocks are trading higher.

Fig 1 – Stock markets

Global growth concerns drove markets lower worldwide. Aggressive policy tightening by global central banks, Covid-19 situation in China and EU’s ban on Russian energy imports continue to cloud the global growth outlook. Demand for safe-havens such as dollar and yen increased. UK’s GDP for Mar’22 contracted unexpectedly (MoM). While US PPI moderated in Apr’22, jobless claims rose to a 3-month high. In India, CPI inflation accelerated to an 8-year high. As a result, 10Y yield jumped sharply by 7bps today. Higher inflation will weigh on consumption and growth. We expect RBI to hike rates by 25-35bps in Jun’22.

Concerns of slowdown in global growth, monetary tightening cycle and high inflation pushed global indices lower. Hang Seng (2.2%) dropped the most. FTSE fell by 1.6% as fears of possible recession weighed on cyclical stocks. Sensex too ended in red led by subdued global cues. Power and metal stocks fell the most. However, it is trading higher today in line with other Asian stocks.

Fig 1 – Stock markets