China’s new lockdown restrictions weighed on global equities early in the week over concern about the impact on its economy and the global supply chain. Initial losses rebounded slightly, but technology stocks dragged down performance late after Amazon.com Inc. reported a decline in revenue for its e-commerce business. In Canada, the S&P/TSX Composite Index declined, dragged down by the Health Care sector. In the U.S., the NASDAQ Composite Index fell almost 4%. The S&P 500 Index finished lower, hindered by weakness in the Consumer Discretionary sector. Oil priced advanced, while the price of gold fell. Yields on 10-year government bonds in Canada and the U.S. finished largely unchanged over the week.
U.S. economy shrinks
A preliminary estimate indicates that U.S. gross domestic product shrank at an annualized rate of 1.4% in the first quarter of 2022, disappointing economists expecting a 1.0% increase.
It was the first drop since the onset of the pandemic in the second quarter of 2020.
A drop in net exports, primarily in response to accelerating imports, and government spending, burdened the U.S. economy.
They more than offset gains in consumer spending, which advanced faster than the previous quarter.
Economic growth slows in Europe
The European economy grew by 0.2% in the first quarter of 2022 over the previous quarter, matching economists’ expectations.
It was a slowdown from the 0.3% growth rate in the fourth quarter, as lockdown restrictions, the Russia-Ukraine conflict, and rising prices hindered consumers and slowed economic growth.
A preliminary estimate shows Europe’s inflation rate rose to 7.5% in April, a new record high. The increase came in response to higher energy and food prices.
BoJ holds steady
While several central banks around the globe have begun the process of monetary tightening, the Bank of Japan (“BoJ”) held steady, believing the Japanese economy still needs the support of accommodative monetary policy.
The BoJ kept its key short-term interest rate at -0.10%, and the target for the 10-year Government of Japan bond yield at 0.00%.
The central bank raised its inflation outlook over the 2022 fiscal year from 1.1% to 1.9%, while lowering growth expectations from 3.8% to 2.9%.
Halting energy exports
Russia’s announcement that it was halting energy product exports to Poland and Bulgaria in response to the two nations’ refusal to pay in rubles pushed gas prices higher across Europe.
Europe has not implemented a full sanction against Russian oil imports, partly due to Germany’s concern about the impact on its economy.
A German official said it would not block an embargo on Russian oil but noted the consequences would hamper the German economy.
In its most recent Commodity Markets Outlook, the World Bank predicts rising oil, gas, and commodity prices will likely persist through 2024 largely in response to geopolitical tensions and ongoing supply chain disruptions.
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