US equities plunged on Friday, capping off a weak month, with the S&P500 declining -3.63% to close at 4,131.93, while the tech heavy Nasdaq100 fell -601.26 points (-4.47%) to close at 12,854.80.
April concludes one of the worse starts for US equity markets since 2008. Amazon (AMZN), which reported their results after the market on Thursday was one of the largest decliners, falling over 14% to close at 2,485.63 a share, while the Aussie founded Atlassian (TEAM) was also weak, shedding -13.52% to close at US$224.83 a share, following their quarterly results update. The Company’s share price is down over 50% over the past six months, from the peak of US$483. 13 a share set in October last year.
Focus will now turn to the US Federal Reserve, who are due to announce their latest policy setting on Thursday May 5th, with the market having already fully priced in a 50-basis-point increase to the Fed Fund rate. Investors and traders will be keenly listening to the forward guidance, as credit markets are currently pricing a 50/50 chance of an additional 75-basis-point increase in June. Should the Fed talk back their outlook about how quickly rates will rise, thus signaling more accommodative monetary policy for longer, equities would likely react positively as a result. Obviously, the Fed currently finds itself between a rock and a hard place, faced with slowing economic growth and falling asset prices on the one hand, and persistently high and increasing inflation on the other.
In addition to the tightening monetary conditions, markets are also grappling with less government stimulus in the form of a wind back in quantitative easing. Governments around the world responded aggressively to the Covid-19 pandemic, buying significant amounts of bonds in a process called quantitative easing, suppressing interest rates to support growth. However, this process has now peaked and is heading into reverse, with Bloomberg reporting that across the G7 nations, Central Banks plan on shrinking their balance sheets (quantitative tightening) by approximately US$410 billion throughout the remainder of 2022. This will further tightening monetary conditions.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
To commodity markets, and on Friday WTI crude oil prices dipped marginally, declining US$0.67 (-0.64%) a barrel to close at US$104.69. Natural gas prices continue to surge, with futures from the New York Mercantile Exchange (NYMEX) lifting 5.17% to close at US$7.24, ay multi-year highs. Prices are up over 177% year-to-date. Base metal prices were mixed, with both copper (+0.75%) and aluminum (+0.69%) higher, while nickel fell 3.66%. Spot gold closed largely unchanged, finishing the week at US$1,896.93 an oz, while spot silver fell 1.63% to finish at US$22.78 an oz.
Australian investors should brace for a weaker market open on Monday, with ASX SPI200 futures down 94 points (-1.27%) on Friday to 7,315. The Australian dollar is currently buying 70.68 US cents.
On the economic front, there are several major events during the upcoming week. In Australia, the RBA will update their cash rate setting on Tuesday at 2.30pm, with the current expectation of a 15-basis-point increase to 25 basis-point. However, given the high CPI reading last week of 5.1%, they may well go for a 40-basis-point increase. This is followed by Trade Balance figures and building approvals on Thursday. While in the US, ISM manufacturing data is out Tuesday, followed by durable goods orders on Wednesday. This is followed by the FOMC rate decision and change in nonfarm payroll data later in the week.
This article was written by Oliver Gordon, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
