04th April 2022

Good morning,

Equities slipped late last week as the first quarter of 2022 closed out. The week started off on a positive note, as negotiations between Russia and Ukraine had struck an optimistic tone. However, sentiment shifted throughout the week on the news flow from Ukraine. The week finished off with the US non-farm payrolls release for March. The number of jobs added came in below expectations at 431,000 (est. 490,000) but the growth seen in January and February was revised upwards. Overall, total US employment is now about 1% short of its pre-pandemic levels. Unemployment also fell 0.2% and now stands at 3.6%, whilst the participation rate suggests that the jobs market is tightening further.

The data did nothing to alter the narrative that the Federal Reserve will hike rates aggressively in 2022, and bond markets sold off further as a result. The yield on the 2 year treasury bond has also moved to a higher level than then 10 year yield, a scenario referred to as ‘yield inversion’. The US manufacturing PMI slowed to 57.1 in March, although it remains firmly above the 50 level. Markets are now close to fully expecting a 0.5% interest rate move in May.

Oil prices continued their recent downward trajectory as President Biden announced the release of oil from the ‘Strategic Petroleum Reserve’ in a move designed to combat inflationary pressures. However, volatility in energy markets looks set to continue as President Putin is now stipulating that from this week foreign buyers of Russian gas must pay in Roubles. Elsewhere in Europe the eurozone’s annualised inflation rate has moved to a record 7.5%, as the currency bloc’s unemployment rate moved to a record low of 6.8%.

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