Global Markets Update:
US markets: US markets declined in the month, with the Dow Jones down -4.9% and S&P500 down -8.8%, as high-growth stocks took a hit after Fed signalled it will reduce its massive bond holdings at a maximum pace of $95 billion a month, further tightening credit across the economy and Fed Chair Jerome Powell said he saw merit in the argument for front-loading interest-rate increases, including +50bps in May.
US treasury yields were higher, with the 2-Yr yield at 2.72% and 10-Yr yield at 2.93%.
European markets: European markets were mostly lower with the Stoxx Europe 600 Index down -1.2%, UK FTSE up +0.4% and German DAX down -2.2%.
Asian markets: Asian markets were lower, with the Shanghai Composite declining -6.3%, as investors fretted over the economic fallout from new Covid-19 outbreaks in China and China’s Covid-Zero strategy. Nikkei was down -3.5% and KOSPI declined -2.3%.
Commodities: Over the month, WTI oil price gained +6.3%, despite OPEC+ cutting forecast for global oil consumption in 2022 by 410k barrels a day, as traders continue to see a global supply deficit after IEA said OPEC+ members provided only 10% of their promised supply increases in March and OPEC+ lowered projections for supplies from outside the cartel by 330k barrels a day for the year, with Russia’s output now seen 530k barrels a day below previous estimates. Iron ore prices declined -8.5% and spot gold declined -2.1%.
ASX performance: The ASX200 declined -0.9%.
Political News:
Geopolitical tensions surrounding Russia-Ukraine war continued to simmer, with UN General Assembly voting to suspend Russia from the Human Rights Council, U.S. Senate passing bill to strip Russia of most-favoured- nation trade status, EU countries agreeing to ban coal imports from Russia and President Joe Biden announcing a new $800m package of military assistance for Ukraine, leading to Russia retaliating by halting bond sales for the rest of 2022 and cutting off natural gas shipments to Poland and Bulgaria.
Economic News:
Australian RBA decision. RBA raised its cash rate by +25bps to 0.35% in May, and warned borrowers to be prepared for interest rates to rise more quickly than anticipated.
Global growth outlook 1. IMF slashed its world growth forecast by the most since the early months of the Covid-19 pandemic, downgrading 2022 global GDP growth by -80bps to 3.6% with advanced economies growth downgraded by -60bps to 3.3% (euro area downgraded by -110bps to 2.8% and U.S. downgraded by -30bps to 3.7%) and emerging economies downgraded by -10bps to 3.8% (China downgraded by -40bps to 4.4% and India downgraded by -80bps to 8.2%), and for 2023 by -20bps to 3.6% with advanced economies growth downgraded by -20bps to 2.4% (euro area and U.S. down -20bps and -30bps, respectively to 2.3%) and emerging economies growth downgraded by -30bps to 4.4%, and projected even faster inflation, with inflation in 2022 at 5.7% in advanced economies and 8.7% in emerging and developing countries, before slowing to 2.5% and 6.5%, respectively, in each group of nations in 2023.
Global growth outlook 2. The World Bank cut its forecast for global economic expansion in 2022 by -90bps to 3.2%, spurred by a cut in the outlook for Europe and central Asia on Russia’s invasion of Ukraine and announced plans to mobilize a new 15-month crisis-response package of about $170bn to cover April 2022 through June 2023, with about $50bn of this amount to be deployed in the next three months.
Global growth outlook 3. WTO downgraded world GDP forecast for 2022 by -130bps to +2.8% as it lowered its projection for growth in merchandise trade by – 170bps to +3%, and predicted GDP should pick up to +3.2% in 2023, close to the average rate of 3% in the decade before the pandemic with trade growth of +3.4%.\
U.S. Economy shrank for the first time since 2020, with 1Q22 GDP falling at a -1.4%annualized rate. U.S. composite PMI declined in April as an advance in manufacturing PMI was more than offset by a decline in services PMI as persistent supply constraints limited capacity and inflation dampened consumers’ willingness to spend, however, a measure of prices received by manufacturers and service providers increased.
China. 1Q22 GDP grew +4.8% yoy with fixed asset investment increasing +9.3% yoy, however, economic activity contracted sharply in April with both manufacturing and non-manufacturing PMI contracting to lowest in more than two years, which saw PBOC reducing the reserve requirement ratio for most banks by -25bps and dropping it by -50bps for smaller banks, unleashing about 530bn yuan of long-term liquidity into the economy, however, keeping the one-year policy interest rate unchanged.
Australia. CPI rose +2.1% qoq (+5.1% yoy) in 1Q22.
Europe. Economic expansion in the euro zone began 2022 on a weak footing with GDP growing +0.2% qoq (+5% yoy) in 1Q22, however, inflation continued to surge, climbing to a fresh all-time high in April, with CPI up +7.5% yoy.
Japan. BOJ kept its main yield curve control settings and the scale of its asset purchases unchanged, announcing to buy an unlimited amount of bonds at a fixed rate every business day, however, raised 2022 CPI forecast by +80bps to 1.9%, reflecting soaring energy prices, which saw Japan’s prime minister unveil 6.2 trillion yen of spending.
Germany. 1Q22 GDP grew +0.2% qoq (+4% yoy), however, inflation unexpectedly accelerated to the fastest since records began in the early 1990s in April with CPI rising
+7.4% yoy, which saw government cut its 2022 GDP growth forecast by -140bps to 2.2%and increase inflation forecast by +280bps to 6.1%.
India. RBI raised its inflation forecast for 2022 by +120bps to 5.7% while downgrading GDP forecast by -60bps to 7.2% and signaled an increase in borrowing costs may happen as early as June.
Stock Specific News:
• GrainCorp Ltd (GNC) – upgraded FY22 underlying profit guidance to A$310-370m from A$235-280m.
• EML Payments Ltd (EML) – downgraded FY22 underlying Npata guidance to A$27-30m from A$27-34m.
• Megaport Ltd (MP1) – reported weaker-than- expected 3Q22 key performance indicators.
• Ramsay Health Care Ltd (RHC) – KKR bid to acquire 100% of RHC shares for$88/share.
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