Weekly View - Long Live The Queen

US equities ended the week in positive territory, with the S&P 500 gaining over 6% after seven consecutive weeks of decline. Following a run of disappointments among US retailers, Macy’s results came out stronger than expected, allowing the sector to rebound over the week. In more bad news for tech however, Snap’s disappointing outlook for the US economy sent tech shares down earlier in the week. We are in a stock pickers’ market and the dispersion in results will continue to bring volatility. We like active management in equities. In one of the biggest ever deals in the tech sector, Broadcom will acquire software company VMware for USD69.1 bn. We remain positive on event-driven hedge funds. Meanwhile, US bond markets started to price in an economic slowdown as housing sales show that rising mortgage rates are reducing home buyer appetites. The University of Michigan’s consumer sentiment index also showed more economic pessimism. Consequently, US 10-year Treasury yields fell to well below 3%. However, the Federal Reserve’s meeting minutes show that central bankers are still in interest-rate hiking mode, given the stronger than expected consumer spending figures published Friday as credit to consumers also remains resilient.

In Europe, some European Central Bank (ECB) members continue to allude to a 50-basis-point (bp) rate rise at its coming July meeting. This drove the euro higher against the US dollar. Purchasing manager indexes published during the week show that the European economy has remained resilient, mostly thanks to the services sector. Across the English Channel, Britain’s chancellor of the exchequer announced a big GBP37 bn support package to help those suffering most from rising prices, including eight million households that will receive a GBP650 one-off payment. This will be partly funded by a “temporary” tax on oil companies, although incentives for oil and gas extraction in the UK remain. This week Queen Elizabeth celebrates 70 years on the throne.

With US investors no longer allowed to accept Russian bond payments, there is a risk of a Russian payment default as coupons become due, including coupons worth USD100 mn due last Friday. In Hungary, President Viktor Orban imposed windfall taxes on energy profits, sending shares of its biggest refinery down 15%. In Brazil, Petrobras’s CEO was removed mere weeks after his appointment by President Jair Bolsonaro, flagging increased government interventionism in markets. Elsewhere, industrial profits in China fell into negative territory, a further indication of the impact that covid lockdowns are having on the Chinese economy. Chinese tech stocks rebounded despite poor results from some tech companies . One major Chinese property developer indicated that it needs to restructure a bond that will mature in June. That bond’s price lost 65 bps in one session on the news and created a wave of declines in the sector. We prefer developed to emerging markets.