Market Commentary Q1 2022

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Market Commentary Q1 2022

This market commentary covers the first quarter (Q1) of 2022, a period dominated by interest rate hikes by the Bank of England in the UK (0.75%) and the Federal Reserve in the US (0.50%). Inflation continues to be above central bank targets and at multi-decade highs for some economies with rising energy prices being one of the main contributors.

The geopolitical events between Ukraine and Russia have also taken center stage for the period, markets have partially recovered from the initial shock but the conflict is far from resolved.

Equity markets have had a difficult start to the year with most still below the end of 2021 valuations. The UK has outperformed other regions which given our overweight position this has helped mitigate downside risk.

The UK’s FTSE 100 finished the quarter 1.8% higher, over in the US the S&P 500 declined by -4.9%% and in Europe the Eurostoxx 600 finished the quarter -6.5% lower.

Emerging markets declined -7.3% for the quarter.

In fixed income, bond yields in the UK and US have begun to price interest rate hikes more aggressively with the UK’s 10-year gilts now yielding 1.6% (compared to 1.0% at the end of 2021) and the US Treasury 10-Year now yielding 2.4% (compared to 1.5% at the end of 2021). In real terms, these rates remain negative when taking into account inflation.

The Bloomberg Barclays Global Aggregate (a benchmark for world fixed income markets) finished lower by -6.2% on a total return basis, this is a rare occurrence and highlights some of the risks involved in owning fixed income assets in a rising rate environment.

In commodity markets, oil has finished the quarter higher at $107.9, a 38.7% increase from 2021’s close, finishing at values not seen since 2014. Rising geopolitical tensions and supply chain constraints contributed to the price appreciation.

Gold finished the quarter at $1,937, an appreciation of 5.9% highlighting some of the safe-haven properties of the precious metal.

The Great British Pound lost -2.9% to the US Dollar and -0.2% to the Euro for the quarter.

Going forward inflation is expected to remain high going into the next quarter which will add further pressures on fixed income assets as central banks attempt to keep inflation under control.

Performance figures are quoted in local currency and represent a price change only. Oil price refers to the front month contract of Brent crude.

Date of data: 31 December 2021 to 31 March 2021.

Source: Bloomberg and InvestEngine