** International Communique No. 334 – 20th of April 2022


The US stock market declined for another consecutive week as investors contemplated the highest inflation rate since December 1981 and disappointing Q1 earnings reports by the large American banks. European benchmarks ended generally higher, buoyed by the energy and commodities sectors. Technology stocks were down sharply, with the Nasdaq index shedding 3%. Fears that the Federal Reserve will hasten the pace of interest rate hikes next month curbed the rise in bond yields. A heavy pall of uncertainty continues to weigh on investors while sustaining high energy prices owing to the war in Ukraine, which drags on with no prospect for a ceasefire in sight.

The outlook for the major banks is, for the most part, disappointing.

European equities have been underpinned by the caution of the European Central Bank (ECB), regarding interest rates. There has been no acceleration in the program aimed at normalising its monetary policy in view of record inflation. The attitude of the ECB governor, Christine Lagarde, has been interpreted as rather accommodating in confirming that the institution’s asset purchases program will end in the third quarter of 2022. Clearly, the ECB must be careful not to choke off the already weak economic upturn, heavily impacted by surging energy prices. This has reassured players and buoyed European stock markets. The main effect has been a drop in the euro to 1.08 vs the US dollar, which continues to appreciate against all the major currencies.

The US consumer price index rose 8.5% year on year in March. Fuel, food and housing generated most of the increase while used car prices eased. Core inflation, which mainly excludes food and energy prices, was up 6.4% in line with forecasts, its highest level since August 1981.

China’s GDP growth was clocked at 4.8% in Q1 2022, showing surprising strength. Economists were expecting a gain of 4.3%. Expansion got a boost in March from industrial activity and capital investment whereas retail sales flagged considerably. The pace of growth could slow in the current quarter, however, as a result of lockdowns. China’s central bank has announced a series of measures focused on facilitating bank lending to shore up the Covid-stricken economy.

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