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16 May 2022

Market Round-Up

After five straight weeks of falls on Wall Street – the worst streak since 2011 – global stocks suffered their worst day since the height of the pandemic on Monday 9th May. Investors’ worries have been growing as they struggle with the economic consequences of rapidly rising US interest rates and slowing economic activity. This is coupled with the uncertainty of the continuing brutality of the Russia-Ukraine conflict and China’s unsustainable zero-Covid policy. On this day, the MSCI ACWI barometer saw one of its sharpest fall since June 2020, dropping by nearly 2%, while the US S&P 500 tumbled 3.2%. The tech-focused NASDAQ took the worst hit, sliding 4.3%. Despite the likes of BP and Shell seeing profit margins rise in their latest results, the energy sector also suffered as Brent crude, the international oil benchmark, dropped almost 6% as investors worried about the outlook of the global economy.

China’s miracle growth story of the past few decades has been stunted, with new data showing that its export growth fell to its lowest level in two years in April. Slowing activity in China has had further knock-on effects on emerging market currencies, which are also coming under pressure from the rising Dollar. The Chinese Renminbi fell to its weakest level against the Dollar in more than 18 months on Monday. This followed disappointing news from Europe’s two largest economies, France and Germany, with data from last week showing weak results as factory orders slowed more than expected in March.

Bond market selloffs remain ubiquitous as the yield on the 10-year US Government bond rose above 3.2% before falling back. Digital currency has also taken a blow, with the world’s most actively traded digital token, Bitcoin, falling below US$30,000 for the first time since July. This is a fall of more than 50% from its November peak when future expectations of decentralised finance were high. Analysts are hoping that such falls will take a slight pause in the coming days.

UK Chancellor Rishi Sunak has demanded that energy companies increase their investment in UK projects to boost the country’s self-sufficiency on oil and gas and avoid the imposition of a windfall tax. Sunak is reluctant to introduce the levy due to fears that it will deter investment, but with increasing pressure from MPs who are asserting that it is necessary to help households struggling with soaring energy bills, there may be few other options. This comes as BP and Shell reported big increases in quarterly profits last week, with Shell reporting a record US$9.1bn of adjusted profits for the first quarter.

Since 2014, investment in the North Sea has fallen 90% and there are expectations that capital spending will, at best, level-off over the next few years. Despite companies, including BP and Shell, penning statements about future investment in the UK focusing on both the exploration and development in the North Sea and renewable energy/low-carbon projects, Sunak’s team does not believe that this is enough and insist that they should commit to more detailed plans beyond their existing ones. Shell have said that they plan to invest between £20bn and £25bn in the UK over the next decade, with three quarters of this focused on low and zero carbon projects including offshore wind, hydrogen, and electric vehicle infrastructure. BP likewise plans £18bn of investment in the UK between now and 2030 after reporting underlying profits of US$6.2bn for the first three months of the year, its best performance since 2008.

Shell has not disclosed how much tax it expects to pay in the UK this year, while BP has said it expects to pay up to £1bn in taxes on its North Sea operations. Bernard Looney, BP Chief Executive, said that the company will commit to the £18bn of planned investment in Britain this decade even if the Government imposes a “windfall” tax. That said, it is not clear how much of that capital expenditure is toward new investment in response to rising profits. Tesco’s Chairman, John Allan, is a notable advocate for the levy, arguing that it would be the biggest move to generate money to help struggling consumers.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
 
Market Round-Up
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