Investment Markets Update: May 2022

May was relatively wet and gloomy. Sunshine was in short supply, reflecting the general economic news and volatile investment markets. The UK finishing 2nd in the Eurovision Song Contest thanks to the phenomenal Sam Ryder was a welcome bright spot!

There have been well-publicised concerns that economies could fall into recession as inflation pressure remains high. We understand that this could cause worry and continue to urge you to keep your long-term goals in mind. A long-term timeframe for investment can help to smooth out the peaks and troughs of markets. This is because, historically, markets recover over time.

We will be sending out further information relating to this early next week. For now, continue reading for a roundup of other news on investment markets and economies in May 2022.

UK Economy & Investment Markets

Cost of Living Payment

At the end of May, chancellor Rishi Sunak unveiled a package of measures designed to alleviate some of the cost-of-living challenges families are facing.

The £15 billion package will be paid through a levy on the profits of energy companies, a “windfall tax”. Among the measures introduced were one-off payments to vulnerable families and support to reduce energy bills for all households.

Inflation & Interest Rates

The measures were made after the latest inflation figures show that, on average, prices increased by 9% in April – the highest level since 1982.

This led to the Bank of England (BoE) raising its base interest rate for the third time this year to 1%. This is the highest base rate for 13 years.

Inflation is also affecting the value of salaries. Figures from the Office for National Statistics (ONS) found that regular pay, which excludes bonuses, increased by 4.2% in the three months to March. While this may seem positive at first, once inflation has been factored in, salaries have fallen in value in real terms.

Consumer Spending

Unsurprisingly, this is affecting consumer confidence.

A consumer confidence index from GfK suggests that sentiment levels have fallen to their lowest point since records began in 1974. The index measures how people view their personal finances and wider economic outlook.

However, according to Barclaycard, consumer card spending grew 18.1% in April when compared to the same period in 2019.  After two years of cancelled holiday plans, the travel sector saw its best month since the pandemic.

Businesses

From a business perspective, inflation is also affecting operations and confidence.

A report from S&P Global and CIPS found UK factories are facing price hikes. 85% of companies said their purchase prices have increased, while no firms reported a decrease. In addition, new order growth hit a 15-month low.

A range of factors have contributed to the poor demand. These include ongoing lockdowns in China, the conflict in Ukraine, and Brexit.

As a result of these pressures, ONS figures show GDP fell by 0.1% in March, leading to concerns that the UK could fall into a recession in 2023.

European Economies & Investment Markets

The effect of the conflict in Ukraine and the inflation pressure it has led to is reflected in the European Commission (EC) downgrading its growth forecasts.

The EC now predicts real GDP growth in both the EU and eurozone of 2.7% for 2022. This compares to a previous forecast of 4% just three months earlier.

While the European Central Bank (ECB) didn’t make any changes to its base interest rate in May to control inflation, president of the ECB Christine Lagarde has indicated a rise will happen in July.

Data from Germany, the largest economy in the EU, demonstrates the challenges that many European countries are facing.

German producer prices have increased by 33.5% in the year to April, with energy prices surging by 87.3% to drive this increase. The conflict in Ukraine is directly affecting some German businesses. Exports to Russia have fallen by nearly two-thirds when compared to last year and are now at their lowest levels in almost two decades.

US Economy

Inflation in the US almost reached a 40-year high in March, with prices rising 8.3% year-on-year. Once again, energy and food prices are driving this rise.

In response, the Federal Reserve raised its interest rate by 50 basis points to a 0.75% – 1% range. The organisation also noted that ongoing increases to the interest rate may be appropriate to try to get inflation under control.

While the University of Michigan’s index of consumer sentiment fell to its lowest level since 2011, data suggests that consumers aren’t cutting back their spending yet. The value of retail sales increased by 0.9% in April.

However, payroll data indicates that businesses are being more cautious than expected. In April, 247,000 new jobs were created, according to ADP. While the number of jobs is still growing, it’s significantly below the 390,000 target.

US company Apple has lost the title of the world’s most valuable company. As oil prices soared, so too did the value of Saudi Arabia’s oil giant Saudi Aramco, which has now surpassed Apple.

Elon Musk’s bid to buy social media platform Twitter has also continued to make headlines. The $44 billion (£34.8 billion) deal is temporarily on hold as Musk is seeking details about spam and fake accounts. The news led to shares in the company falling by 10%.

Asian Economies

China is also facing challenges as it continues to enforce ongoing lockdowns in certain areas.

The lockdowns, along with consumers cutting their spending – retail sales fell by 11.1% in April – and falling industrial production have slowed the economy’s growth. In turn, there are more unemployed people compared to a month earlier.

Like many other countries, China is battling rising inflation. Currency weakness and rising food and energy prices have contributed to this.

Thank you for reading. We hope this summary of investment markets and economies has been informative. If there are any aspects of this post that you would like to discuss, please do contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.