A look at the day ahead in markets from Saikat Chatterjee.
Whether you are a macro-guru or an astute stock picker, this is a quarter that most investors would like to forget.
Most consensus trades coming into 2022 including long value stocks, yield curve steepeners and buying euros have been crushed. Not only world stocks have witnessed the most gut-wrenching volatility in years, the first three months of the year has fuelled the strongest commodities rally since World War I and the fastest rise in global interest rates in decades.
But as the dust settles on the first quarter, stock markets are slowly finding their feet. U.S. stocks are back to within 5% of the all-time high struck on January 4.
A global stock index will end the quarter down around 4%, its worst performance since the pandemic crash two years ago but well above the 14% year-to-date drop only two weeks ago.
Bond and currencies have fared worse. A Bank of America (NYSE:BAC) U.S. Treasuries index is on track for its worst quarterly performance in 25 years while the Japanese yen has declined a whopping 6% in the last three months, a speed of decline only rivaled by the British pound after the Brexit referendum vote. Volatility has soared across asset classes.
But taking the 30,000 feet view above the quarterly market performance, some longer term trends are emerging. Russia's invasion of Ukraine means global supply chains will remain under pressure for the forseeable future and global policymakers will struggle to control rampant inflation without choking growth.
For now, markets are taking the optimistic view. U.S. and European stock futures are higher and oil prices lower on signs the Biden administration is considering a massive release of crude oil from U.S. reserves to combat inflation.
However, a slide in Chinese stocks as output data reflect the damage of renewed lockdowns in technology and factory hubs weighed on Asian markets. Treasuries added to price gains, while a portion of the curve has pulled out of a brief inversion that raised concerns about an impending recession.
Graphic: Global markets year-to-date - https://fingfx.thomsonreuters.com/gfx/mkt/dwpkrqkejvm/Pasted%20image%201648628891823.png
Key developments that should provide more direction to markets on Thursday:
- U.S. data dump: Personal income, spending, Initial jobless claims.
- Sweden's H&M reports smaller-than-expected profit
- China's factory and services sectors swung into negative territory in March,
- French inflation rises more than expected in March to record 5.1%
- COVID spending helped UK economy to grow in late 2021
Foreign Affairs Sergei Lavrov in China
- ECB bank supervisor Andrea Enria, ECB board member Philip R. Lane, ECB Vice President Luis de Guindos
- New York President John Williams
- OPEC and non-OPEC Ministerial Meeting
- US weekly jobless claims/PCE price index
- Emerging markets: Colombia, Czech central banks