In this week’s market updates, there is unease on investors’ minds as the Fed tightens their monetary policy and the Covid crisis continues in China.
Global equities gave back some of the gains recorded in March, as stocks pulled back after a strong start to the week. S&P 500 and MSCI World declined by 2.06% and 1.77% respectively, while MoneyOwl 100% equity portfolio was down 1.13%. The US 10-year Treasury rose 35 bps to 2.76%, putting pressure on global fixed income assets as the Bloomberg Barclays Global Aggregate bond index declined 1.26% last week.
The week was relatively quiet in headline news as uneasiness continue to drive the markets. Several issues remain on investors’ mind such as potential implications of the Federal Reserve tightening their monetary policy aggressively, Covid crisis returning in China and fresh sanctions on Russia.
Fed’s Assets Rapid Reduction
Federal Reserve Governor Lael Brainard called the task of reducing inflation pressures “paramount” and said the central bank will raise interest rates steadily while starting balance sheet reduction as soon as next month. During the middle of the week, details of the balance sheet reduction were released, and Fed officials laid out a plan to shrink balance sheet by more than $1 trillion a year while also raising interest rates to counter inflation.
Covid in China
China’s Covid crisis deepened as lockdown in Shanghai intensified amid a surge in new cases and reports of a new strain of the Omicron variant emerging. China, after quashing its initial outbreak in Wuhan in 2020, is currently experiencing its biggest jump in daily infections since 2020. China’s lockdown restrictions in several Chinese cities to contain the Covid crisis have primarily hit travel over both short and long-distances, which is a direct complication for global supply chains as productions stop and consumer consumptions are deferred. China authorities have signalled it would further loosen monetary policy at an “appropriate time” and explore new measures to boost consumption to battle an escalating Covid outbreak and spiking commodity prices.
Fresh Sanctions on Russia
Russia faced a fresh round of sanctions that includes banning of coal imports from Russia by the European Union (EU), while the US also ended imports of oil and gas. The sanction came after the discovery of civilian murders and other atrocities committed in Ukrainian towns that sparked global outrage. Sanctions currently under discussion include a US ban on investment in the country and increased penalties on financial institutions. Putin’s daughters, political figures and tycoons could also be targeted. Meanwhile, Asia’s tourists hotspots are missing their big-spending Russian guests.
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