Stocks tumble as volatility continues its reign
S&P suffers longest weekly losing streak in decade. European stocks slump to two-month low as risk-off mood spreads. China premier warns of “grave” jobs situation as lockdown weighs. ...
Chief Investment Office9 May 2022
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Volatility continued to dominate financial markets, with stocks pushing lower as the latest US jobs data cemented expectations the Federal Reserve will remain on its rate hike path to combat stubbornly high inflation.

At the end of a week marked by fickle trading, quick reversals and heightened anxiety, the S&P 500 failed to stay in the green and fell to its lowest level in about a year. The gauge posted its fifth straight weekly drop – the longest losing streak since June 2011. The tech-heavy Nasdaq 100 underperformed. Treasury 10Y yields remained above 3%, while the dollar rose. Gasoline futures in New York settled at a record high.

The long-awaited jobs report showed US hiring advanced at a robust pace in April, yet a smaller labour force may increase pressure on employers to boost wages even more to bring workers back. That dynamic will likely complicate the Fed’s fight to tame decades-high inflation, as central bankers work to bring labour demand in line with supply.

Fed Bank of Richmond President Thomas Barkin said he would not take anything off the table in the central bank’s fight to curb inflation, including raising interest rates by 75 bps – an option downplayed by Chair Jerome Powell. – Bloomberg News.

The S&P 500 Index fell 0.57% to 4,123.40 on Friday (6 May), the Dow Jones Industrial Average declined 0.30% to 32,899.37, and the Nasdaq Composite Index closed 1.40% lower at 12,144.66.



European stocks extended losses on Friday (6 May), dropping to the lowest level in nearly two months as concerns over a bleak economic outlook, soaring prices, and rising bond yields kept sentiment shaky.

The Stoxx 600 Index fell 1.91% to 429.91 by the close in London, with real estate and media sectors among the biggest decliners. Energy outperformed as oil headed for its first back-to-back weekly gain since early March on signs the market is tightening as the European Union moved toward banning Russian crude.

The European equity benchmark hit an eight-week low as initial euphoria sparked by the US Federal Reserve’s decision to raise interest rates quickly soured over broader concerns regarding growth and inflation, and how central banks will manoeuvre in order to avoid a recession, took over investors’ attention. European equities have been under pressure this year due to concerns about monetary tightening, surging inflation, and economic risks from the war in Ukraine.

Investors have been watching the earnings season closely for clues as to how companies are faring amid rising input costs and pandemic-related supply chain disruption.

Russia‘s invasion of Ukraine has been another worry, with ING Groep‘s shares falling after the Dutch bank’s first quarter profit missed analyst estimates due to Russia-related provisions. – Bloomberg News.



Japan is set to experiment with opening its borders to small groups of vaccinated foreign tourists as soon as this month, Fuji News Network (FNN) reported, in a potential lifeline for the country’s ailing travel industry.

Those wishing to visit must have undergone three Covid vaccination shots and be part of a package tour with a fixed itinerary, FNN said Friday (6 May), citing multiple government officials. The limited resumption of inbound tourism will be treated as an experiment and, if infections do not spread, the programme would be expanded, it said. 

The report came a day after Prime Minister Fumio Kishida said in a speech in London that he planned to relax pandemic-related border restrictions in line with other wealthy democracies from June. He later added a note of caution, telling reporters he needed to look at the state of infections after a series of public holidays in late April and early May known as Golden Week.

Border easing would be welcomed by Japan’s tourism industry, which has been urging the government to allow in more overseas visitors to take advantage of the weakening yen. Until the pandemic, inbound travel was a rare bright spot for Japan’s economy as the number of foreign visitors expanded five-fold between 2011 and 2019.

While Kishida did not mention masks, the government advises using them and the overwhelming majority of Japanese continue to wear them, both indoors and out.

Several tourism-related stocks gained on the news. Japan Airlines climbed as much as 4.5%, while Japan Airport Terminal surged 6.8%. Travel agency HIS, a sector bellwether, erased a morning loss and rose as much as 2.7%.

The impact of the opening up may be muted by the fact that China, the largest source of tourists before the pandemic, has effectively closed its borders. – Bloomberg News.

The Nikkei 225 Index was 1.31% lower at 26,649.00 on Monday (9 May) morning. The benchmark rose 0.69% to 27,003.56 on Friday.



Chinese Premier Li Keqiang warned of a “complicated and grave” employment situation as Beijing and Shanghai tightened curbs on residents in a bid to contain Covid outbreaks in the country’s most important cities.

Li instructed all government departments and regions to prioritise measures aimed at helping businesses retain jobs and weather the current difficulties, according to a late Saturday (7 May) statement, which cited the premier’s comments in a nationwide teleconference on employment.

“Stabilising employment matters to people’s livelihoods, it is also a key support for the economy to operate within a reasonable range”, Li said, urging businesses to resume production with Covid-fighting measures in place, while reiterating the government’s policy to promote the healthy development of Internet platform companies to support employment.

The premier’s warning on employment came after the nation’s surveyed jobless rate climbed to 5.8% in March, the highest since May 2020, according to data released by the National Bureau of Statistics in mid-April.

China’s top leaders warned against attempts to question the country’s Covid-Zero strategy as newly released data for April showed the lockdown-dependent approach taking a heavy toll on the economy. The rolling out of even more intense restrictions over the weekend in Shanghai and Beijing adds further to the challenges facing policymakers seeking to shore up growth.

China reported 4,384 new Covid-19 cases for 7 May. Shanghai, which has been under some form of lockdown for weeks, recorded 3,975 new infections, down from 4,000-plus daily infections earlier. Beijing logged 62 new cases as authorities in the capital scramble to contain a wider spread.

Both Shanghai and Beijing increased restrictions on their residents Sunday to achieve the Covid-Zero goal, with authorities in the financial hub stepping up efforts to quarantine close contacts of people testing positive for the virus. People living in the same building of confirmed cases now also risk being transported to designated quarantine facilities, according to local residents and widely circulated social media posts about the subject. Previously, only people living in the same apartment or the same floor of positive cases would likely be considered close contacts and put under central quarantine.

Top Shanghai officials including party secretary Li Qiang have vowed repeatedly to “win the war” against the outbreak and hit the goal of achieving zero community spread in the city of 25m residents as soon as possible. Of the nearly 4,000 cases reported for Shanghai Saturday, 11 were still found outside quarantine areas.

Trade data on Monday will provide clues to the extent of the damage. Chinese export growth likely slowed to its weakest pace since June 2020, while imports probably contracted for a second month, a sign of weak consumer spending as millions of residents in Shanghai and elsewhere were confined to their homes.

Chen Yulu, vice governor of the People’s Bank of China, said the central bank would put a greater focus on stabilising growth and increase support for the real economy. In a Xinhua interview published Saturday, Chen also said authorities will help smaller banks increase their lending capability through the sale of perpetual bonds.

The Shanghai government has been scrambling to push key enterprises to resume production, but many foreign businesses say they are still unable to restart operations. Financial regulators in Shanghai on Sunday called on local banks to boost credit support for residents with “flexible employment” such as online-shop owners and truck drivers.

Financial institutions in the city have lent CNY72.3b (USD10.8b) to sectors including retail, catering, and tourism, and CNY33.5b to materials suppliers and logistics companies since March when the latest outbreak started in the city, Yu Wenjian, an official with the central bank’s Shanghai head office, said at a regular briefing on Sunday. He also urged banks to allow Shanghai home buyers to delay mortgage payments or adjust payment plans to help them weather the Covid impact. – Bloomberg News.

The Shanghai Composite Index tumbled 2.16% to 3,001.56 on Friday. The Hang Seng Index shed 3.81% to 20,001.96.



Fed hikes, decades-high inflation, and Covid lockdowns in China are only adding to investor bets that Southeast Asia’s stock markets may be one of the best places to park their money right now.

Buyers are touting an economic reopening and the region’s attraction as a hedge against higher commodity prices, which is helping the MSCI Asean Index break out of a three-year relative downtrend vs its global peer. Foreign funds have been net buying Southeast Asia shares every month of this year, with total inflows of USD10b so far, Bloomberg-compiled data show.

Unencumbered by the border restrictions of China and Japan, Southeast Asian economies are being supported by the revival of tourism, an industry which contributed 12% of their gross domestic product in 2019, according to the World Travel & Tourism Council.

Ticket bookings are on the rise as Thailand, Malaysia, and Indonesia offer quarantine-free entry for vaccinated travellers, while Singapore has mostly returned to pre-pandemic life.

Meanwhile, the region is acting as an inflation hedge as the war in Ukraine pushes global commodity prices higher. Malaysia is a net oil exporter while Indonesia ships coal, palm oil, and natural gas among others, helping drive gains in related shares.

The Jakarta Composite Index is the best performing major benchmark in Asia this year, up nearly 10% and hovering near a record high. The broader Southeast Asia gauge is on track to outperform the MSCI All Country World Index for a second straight quarter.

The outperformance has come despite the Federal Reserve kicking off an aggressive campaign of interest rate rises, something which has weighed on the region’s assets in the past. For now, investors have been giving local central bankers the benefit of the doubt that they can successfully manage the shift to tighter monetary policy even as inflation continues to spread.

The impact of any policy tightening will at least seep through to earnings for financial firms, which make up almost 40% of the Southeast Asian benchmark.

Southeast Asian stocks also stand out as a haven of sorts with expensive US shares hit by rising rates, European ones under pressure from the impact of Russia’s invasion of Ukraine, and Chinese equities pricing in a growth slowdown thanks to Beijing’s unwavering Covid-Zero strategy. – Bloomberg News.

The S&P/ASX 200 Index opened 0.35% lower at 7,180.30 on Monday (9 May) morning. The benchmark fell 2.16% to 7,205.60 the previous session.

South Korea’s Kospi Index dipped 0.31% lower at 2,636.39 in early Monday trading, after declining 1.23% to 2,644.51 on Friday.

The Taiwan Stock Exchange Weighted Index shed 1.72% to 16,408.20.



Oil closed Friday (6 May) at a six-week high on signs the market is tightening as members of the European Union (EU) moved closer toward banning Russian crude.

West Texas Intermediate (WTI) futures posted its first back-to-back weekly gain in two months. The EU intends to ban Russian crude in six months and oil products by the end of the year to punish Moscow for its war on Ukraine. The bloc has proposed giving Hungary – which has pushed back against an embargo – and Slovakia an extra year to comply, people familiar with the matter said Friday.

The US government said Thursday that it would begin buying crude to replenish the nation’s reserve. While the process could begin in the fall, the actual deliveries would not take place until later in the future.

Oil has rallied more than 40% this year as the invasion of Ukraine upended commodity markets. Last week’s advance – the third in the past four – has come despite lingering concerns that lockdowns in China to combat Covid-19 outbreaks are hurting consumption. 

Last week, the Organization of Petroleum Exporting Countries and its allies did announce another modest increase in supply, but there is doubt the alliance will be able to deliver the full volume.

WTI for June delivery advanced 1.39% to settle at USD109.77 a barrel in New York. Brent for July rose 1.34% to USD112.39 a barrel. – Bloomberg News.




The dollar is powering ahead against almost all its major peers, buoyed by higher Treasury yields and a selloff in stocks that is turbo-charging demand for the world’s reserve currency.

Bloomberg’s gauge of the greenback gained for second day, approaching a two-year high set last month as investors seek shelter amid concern that Federal Reserve interest rate hikes will send the global economy into recession. The risk-sensitive Norwegian krone and Australian dollar were among the biggest losers on Friday (6 May), while stock markets across the globe continued to tumble as investors flocked to the haven greenback.

A mix of higher interest rates and geopolitical uncertainty has boosted the Bloomberg Dollar Spot Index by more than 6% this year. Relentless dollar strength has hammered the yen in particular, with Japan’s currency sliding almost 12% since the end of December as the Bank of Japan’s dovish monetary policy diverges with the Fed’s hawkish rhetoric.

Elsewhere in Asia, the Taiwan dollar, South Korean won, and the Chinese yuan all dropped at least 0.5%. Emerging Market bonds are also being hammered after US 10Y yields climbed above 3% last week (ended 6 May). Sovereign debt slid from Korea to Malaysia Friday as investors ditched growth-sensitive assets.

The dollar’s surge raises the spectre of greater intervention by Asian central banks looking to stem the rout in their currencies.

Some measures are already underway. Japanese officials have been vocalising their displeasure of the yen’s “disorderly” moves, while the People’s Bank of China has sought to curb the yuan’s weakness by cutting the amount of money banks need to have in reserves for foreign currency holdings.

Hong Kong may be next. The city’s currency is a whisker away from the 7.85 per dollar level at which the central bank steps in to ensure the peg to the dollar remains in place.

Strategists say buying the dollar against virtually everything else is likely to remain a winning strategy.

“King dollar still has more to gain over coming months,” said a strategist. “The Fed remains resolute on its quest to quickly get to neutral if not going beyond.” – Bloomberg News.

On Friday, the US Dollar Index fell 0.09% to 103.660, the euro rose 0.09% to USD1.0551, the pound lost 0.11% to USD1.2348, and the yen weakened 0.28% to 130.56 per dollar.


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