Ongoing Market Commentary: European markets headed for gains

written on May 5, 2022

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalisation and further fuel higher structural inflation. 

US stocks ended sharply higher on Wednesday notwithstanding the Federal Reserve delivered a widely expected interest-rate hike, and the S&P 500 recorded its biggest one-day percentage gain in nearly two years. Stocks initially see-sawed after the announcement, then the indexes strengthened, with the Dow rising by 2.8%, the S&P 500 gaining 3.0% and the Nasdaq outperforming with a 3.2% jump. In the meantime, European equity markets closed the mid-week session lower brought down by retail stocks after data showed retail sales in the Euro Area unexpectedly dropped in March. 

Summary

  • Shares in Asia were higher in Thursday trade. Mainland Chinese stocks were in positive territory as they returned to trade following days of holidays. 
  • European markets are headed for gains tracking global sentiment while in the US futures eased after the post-Fed relief rally. 
  • Oil prices extended gains this morning as a European Union proposal for new sanctions against Russia, including an embargo on crude in six months, offset concerns over Chinese demand. 
  • The Federal Reserve raised the target for the fed funds rate by half a point to 0.75%-1% yesterday, the second consecutive rate hike and the biggest rise in borrowing costs since 2000. At the same time, Chair Powell said the Fed is not considering a bigger 75bps rate hike in June, easing expectations for a more aggressive approach. 
  • China’s services sector activity sank to 36.3 in April 2022 from 42.0 in March, according to a private sector survey, the second straight month of contraction amid tighter Covid-19 containment measures. The latest print pointed to the sharpest fall in the sector since the onset of the pandemic. 
  • Airbus late Wednesday announced Q1 profits surged 237% year over year amid higher revenues reflecting the increased number of commercial aircraft deliveries with a favourable mix. For 2022, the company continues to target 720 commercial aircraft deliveries, with an EBIT of €5.5bn. 
  • Ebay lowered financial projections for the year as it swung to a quarterly loss driven by its equity investments and the value of goods sold and active buyers fell again. Shares of the company declined 6% in after-hours trading. 
  • Focus in Europe today will turn to the Bank of England, which is expected to announce a fourth consecutive interest rate hike to combat soaring prices. 

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Life’s full of mysteries. Your money shouldn’t be one of them.