Market update for the week of May 6, 2022

This week, the Fed delivered the well expected 50 bps hike, bringing the Federal funds target range to 0.75%-1.00%. Since the intended impacts of rate hikes, higher cost for business will take time to reflect in the economy, it’s more important to listen to the Fed talks about their outlook following each meeting, especially when the quantitative tapering will happen in June . On inflation, the Fed acknowledged that inflationary pressures have intensified due to the Russia/Ukraine war and COVID-related shutdowns in China. In response, the Fed noted that “appropriate firming”, likely in the form of 50 bps increases in June and July, will be needed. Despite advocating for 50 bps hikes, Fed chairman Powell advise against a 75 bps hike. This brought comfort to investors worried about overly aggressive tightening and provided a temporary boost to equity markets and the front-end of the curve. However, investors were quick to refocus on the reality that markets are now pricing in a year end Fed funds rate of 2.8%. It’s not just inflation that worry the Fed, but also the labor the imbalance between the supply/demand in the job market. Job openings currently sit at 11.5M, while the number of unemployed persons stands at 5.9M – that’s 1.9x vacancies for every American looking for a job. Thus, the Fed should feel comfortable raising rates to at least neutral rather quickly so that the job market will approach balance next year.

As the Fed suggest there will be a soft landing in the economy, investors should focus on preserving capital by increasing the cash level in their portfolio, picking sector with higher quality, defensive business like healthcare and utility sectors.

In terms of U.S. stocks, the three major indexes closed down collectively, the Nasdaq fell 1.4%, and fell 1.54% this week; the S&P 500 fell 0.57%, and fell 0.2% this week; the Dow fell 0.3%, and fell 0.23% this week. Among them, the Nasdaq fell for five consecutive weeks, setting the longest record since 2012; the S&P 500 fell for five consecutive weeks, setting the longest record since 2011; the Dow recorded six consecutive weekly losses, setting the longest record since 2011. The United States released seasonally adjusted nonfarm payrolls data for April, showing an increase of 428,000, slightly higher than the expected 400,000. The month-on-month increase in wages was the slowest in nearly 13 months, with hourly wages, hours worked per week and the labor force participation rate all below expectations.

On the upside, the defensively-oriented utilities sector benefited from volatility in the broader market, extending this week's gain to 1.2%, while energy also outperformed throughout the day, finishing on its high. The energy sector's strength was underpinned by continued strength in crude oil, which climbed $1.80, or 1.7%, to $110.00/bbl, gaining $4.97, or 4.7%, for the week. The energy sector, meanwhile, jumped 10.2% this week, extending its year-to-date advance to 49.2%.

Nasdaq Composite -22.4% YTD

Russell 2000 -18.1% YTD

S&P 500 -13.5% YTD

Dow Jones Industrial Average -9.5% YTD

In terms of A-shares, the two cities shrank in volume. The Shanghai Composite Index ended its four-day winning streak and closed down 2.16% at 3,001 points. The Shenzhen Component Index fell 2.14% and the ChiNext Index fell 1.9%. 1,250 shares in the two cities rose, while 3,327 shares fell, with a turnover of 760 billion. Industry sectors fell almost across the board, with electrical instrumentation, real estate, non-ferrous metals, steel, and winemaking sectors falling sharply. Hikvision fell 9%, Zijin Mining fell 7%, and Poly Development fell 6%. Software stocks performed relatively strongly. Concepts such as HarmonyOS, Smart Government Affairs, and State-owned Cloud were among the top gainers. ArcherMind's 20CM daily limit; Covid -9 drugs, Covid-19 testing, hepatitis and other concepts were active.

In terms of Hong Kong market, affected by the sharp drop in U.S. stocks overnight, Hong Kong stocks fell unilaterally on Friday. All popular sectors fell, and the overall market sentiment was poor. As of the close, the Hang Seng Index fell 3.81% to close at 20,000 points, the China-enterprise Index fell 4.33%, and the Hang Seng Technology Index fell 5.23%. Technically speaking, large technology stocks led the market lower, with Baidu, Alibaba, and JD.com down more than 6%; Internet medical stocks continued to plummet, and non-ferrous metal stocks, catering stocks, auto stocks, power stocks and property management stocks fell one after another. On the other hand, stocks in computer software and baby products are seeing gains. The net inflow of funds going south against the trend was 3.402 billion Hong Kong dollars, and the market turnover was 117.8 billion Hong Kong dollars.

In terms of major global asset prices, the WTI June crude oil futures settlement price closed up $1.51, or 1.39%, at $109.77/barrel; Brent July crude oil futures settled up $1.49, or 1.34%, at $112.39/barrel. bucket. COMEX June gold futures closed up 0.4% at $1,882.8 an ounce, but fell 1.5% in the first week of May, continuing the 2.2% decline in April, the largest monthly decline since September last year.

Next week

The US will release CPI figures for April and Michigan market sentiment for May.

China will release CPI and export data for April.

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