It will be a very wary start to May trading on markets around the world today after the sell-off on Wall Street on Friday capped a miserable April – especially for shrinking megatechs led by Amazon, which saw its shares plunge 14% in the session.
Tuesday and Wednesday’s Fed meeting is the big news for investors who want the central bank and chair, Jay Powell to outline the pathway for a series of rate rises and an overall tightening of monetary policy.
Investors sent the S&P 500 up 8% in two weeks after the Fed’s first rate rise in March (it hit a series of negatives, led by the sudden switch to a very hawkish stance by the Fed). Now there’s hope that the same will happen after this week’s 0.505 increase and more to come.
The Aussie market will start the new month today looking at a 94-point selloff of its own after Friday’s bath in New York and will be a reversal of Friday’s 1% gain, which now looks very odd and was perhaps due to end-of-month ‘window dressing’ by some big investors.
Aussie investors want something similar from the Reserve Bank after its May policy meeting tomorrow.
Overnight futures were down more than 100 points at one stage on Friday night as traders were hit by the big slides on Wall Street.
The S&P 500 and Nasdaq hit new 2020 lows and Nasdaq had its worst month since 2008, in the depths of the GFC.
US analysts said the slide by the S&P 500 in the four months to Friday was the worst start for a year since 1939!
Friday’s slump took Nasdaq’s fall during April to 13.5%, the worst monthly decline since October 2008. The index is now down more than 21% for the year to date after four months of trading.
It is also 22% under the last peak in November, 2021. For investors in the big techs, the losses are in the hundreds of billions of dollars.
That the Nasdaq performed worse than in the March quarter of 2020 in the face of the spectre of the first wave of the Covid-19 pandemic tells us a lot about how Wall Street in its broadest sense has lost the plot as the Fed tightens monetary policy and takes the free money away.
The tech-heavy Nasdaq lost 4.2%, or nearly 537 points weighed down by Amazon’s post-earnings slump. Amazon’s 14.05% drop wiped more than $US206 billion off the value of the megatech, its largest percentage fall since 2006.
The S&P 500 retreated by 3.6% or 155 points. The Dow shed about 939 points, or 2.8%.
The Nasdaq finished at a new low for 2022 and the S&P 500 did as well, with the main stock benchmark taking out its previous low in March.
The Nasdaq fell about 13.3% in April, its worst monthly performance since October 2008. The S&P 500 lost 8.8%, its worst month since March 2020 at the onset of the Covid pandemic. The Dow was down 4.9% over the month.
The Nasdaq is now trading in a bear market, down more than 23% from the all-time high of 16,057, hit on Nov. 19. The tech-heavy index had its worst first four-month start to a year on record.
The reason – there are many and all will be around starting today.
Headwinds from the monetary tightening by the Fed and other central banks, rising interest rates, persistently rising inflation, the new surge in Covid cases in China and the ongoing war in Ukraine which has destabilised share markets, commodity prices and buffeted the global financial system.
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The surge in inflation thanks to the Russian invasion of Ukraine in late February played havoc with interest rates and currencies, on top of the damage done to sharemarkets and commodities.
Friday saw another reminder from the most watched set of inflation and consumer spending data released each month – the Personal Consumption Expenditure (PCE) figures – which is the Fed’s key inflation tracker.
The US Commerce Department on Friday reported that March saw the PCE surge an annual 6.6% rate, the highest 12-month jump in four decades (like Consumer price Inflation).
The latest report on rising US inflation follows a report from statistics agency Eurostat that shows inflation hit a record high in April of 7.5% for the 19 countries that use the euro.
Australia’s 5.1% CPI rise and 3.7% annual core inflation rate looks good against that data.
US bond yields skyrocketed in the four months to April, closing around 2.93% for the 10-year security, up 12 points on Friday alone. The 10-year treasury bond yield ended 2021 at 1.51% so the yield has almost doubled. Friday’s close was within sight of its year high of 2.978% hit in early April.
The yield actually dipped as low as 1.71% in early March in the wake of the Russian invasion of Ukraine in late February, showing once again it is the world’s pre-eminent safe haven investment.
The Aussie dollar ended 2021 at 72.65 US cents on the last day of the year and on Friday traded down well under 71 US cents to be around 70.60.
During that time, it fell under 70 US cents briefly after the February 24 Ukraine invasion but rebounded to touch 75 US cents as investors realised commodity-rich Australia was one of the few beneficiaries of the invasion and upward pressure on commodity prices.
But higher inflation, the prospects of rising interest rates from this week’s Reserve Bank monthly monetary policy meeting, the surge in Covid cases in China, our most important market and the May 21 election campaign have all combined to undermine the dollar. So much so that the currency dipped 2.5% in value last week as the green back rose.
Adding to the pressure on the Aussie dollar has been the selloff in the Japanese yen which is now at 20-year lows as the bank of Japan made it clear there would be no rate rise despite rising inflation. China’s currency also hit its lowest level in more than a year against the greenback this week on fears about the health of the economy.
More stimulus talk from President Xi Jinping and members of his government helped soften the blow, but the key CSI 300 index was still down 4.9% for April alone and more than 18% for the first four months to Friday’s close. The index rose more than 2% on Friday on the latest stimulus promise from the government.
European markets outperformed Wall Street with the EuroStoxx 600 index up 0.7% on Friday and, down 1.,7% in April and just over 7% year to date, despite the Russian invasion of Ukraine forcing up energy prices and now threatening the supply of gas to the region.
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Commodities had a month dominated again by oil
Oil rose then fell on Friday to end the month with small gains.
The more-active second-month Brent crude futures contract fell 12 cents to settle at $US107.14 a barrel. The expiring front-month contract rose $US1.75 to settle at $US109.34 a barrel That’s why the expiration of the front month contract in any commodity can be highly misleading)..
The June US West Texas Intermediate crude contract, which did not expire on Friday, fell 67 cents to settle at $US104.69 a barrel, as traders sold energy contracts across the board after confusion in the market for heating oil saw wild swings throughout the session.
Both Brent and WTI rose for the week and posted their fifth straight monthly gain. Brent ended the month up 1.3%, while WTI ended up 4.4%.
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Precious and industrial metals, though, had a down month.
Comex gold regained the $US1,900 an ounce level last week but still shed 2% after settling at $US1,909.30 an ounce.
Comex silver lost more than 8% to end at $US23.04 while Comex copper shed more than 7%, ending Friday and the month at $US4.39.50.
Driving copper lower was the slow realisation the Chinese economy was in trouble from the poor Covid control policies of the government.
The extent of those troubles was confirmed on Saturday with surveys of activity in manufacturing and services on the weekend showed the slowest pace in 26 months, thanks to the lockdowns in much of the country, especially Shanghai.
