Even though the invasion in Ukraine is still ongoing, it no longer dominated the top economic news as for now gas and oil continues to flow from Russia despite global sanctions crippling the Russian economy. That however did not stop prices from climbing further. The natural gas prices climbed for a second consecutive month by 28% to 7,244 MMBTU at the end of April (from 5,642 MMBTU in March and 4,402 in February), shortly topping 8MMBTU. Crude oil on the other had climbed by a more modest 4,40% to 104,69 dollars per barrel. Renewed COVID lockdowns in China, the world's largest oil importer, threaten consumption and kept oil prices from accelerating further.

Annual inflation in the US climbed for the 7th consecutive month, from 7,9% to 8,5% while core inflation climbed modestly from 6,4% to 6,5%, below the expected 6,6%. US inflation is at the highest level in four decades. The modest climb in core inflation, which excludes food and energy, however illustrates the impact food and energy have on the overall consumer price index. Also in the eurozone inflation climbed further, namely to 7,5%. As a result the focus of investors shifted primarily back to the central bank policy.

As was widely expected, the Federal Reserve already lifted the interest rate by 0,25% to 0,50% in March but several more rate increases are expected to follow to properly combat current inflation. Also the minutes from the March Federal Reserve meeting showed the Fed is ready to shrink its balance sheet by $95 billion a month, starting in May.

The European Central Bank on the other hand kept their rate unchanged at zero, but analysts are shortening the time frame for the first Eurozone rate hike with the first increase expected later this year. The Bank of England is expected to raise their interest rate for the fourth consecutive time to 1,00%.

Notably in the USA the 10 Year Treasury Yields continued to rally in April from 2,345% to 2,938%, the highest since late 2018, pushing down bond values. The climbing interest rates is likely to weight on economic growth and now even fears of an upcoming recession are becoming more prevailant.

Stock market indices overall recorded losses in April. In the USA the S&P500 index lost 8,80%, the Dow Jones lost 4,90% and Nasdaq Composite lost a solid 13,26%. Nasdaq's strong drop was because the index is heavily stacked with companies in the technology sector which bore the brunt of the losses on their high valuations. On the other hand the dollar also gained 4,74% against the Euro, closing the month at 1,0541, the strongest it's been since early 2017.

In Europe the German DAX lost 2,20%, French CAC lost 1,89% and Eurostoxx 50 lost 2,55%. While Slovenia's SBITOP indexstood out with a solid gain in March, it now also dropped in April by 3,37%.

In Hong Kong the Hang Seng index dropped 4,13%, largely on concerns of the new COVID lockdowns in China. And in Japan the Nikkei index dropped 3,50%.

While all eyes remain on central banks, there will also be a strong focus on corporate earnings in May as the next earnings season is just around the corner.
 

Rudy Marchant
Fund manager Primorski skladi

Monthly reports - April 2022