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A review of the week's top global economic and capital markets news.
For the week ending May 20, 2022
As of noon Friday, global equities declined for the week as inflationary concerns and margin weakness hit retailers. The yield on the U.S. 10-year Treasury note settled at 2.81% after breaching 3% earlier in the week. The price of a barrel of West Texas Intermediate crude oil increased to $112.21 from $110.04 while volatility, as measured by the Cboe Volatility Index (VIX), stabilized after rising during the week to settle at 29.35 from 29.06.
Credit spreads across both global investment-grade and high-yield markets have widened as investor appetite for risk has declined amid continued volatility in the equity markets. Bond sales slowed in May, with several new issue deals pulled due to unfavorable market conditions. The rout in equity markets continued after several attempted bounces failed, with the tech-heavy Nasdaq Composite Index leading domestic indices lower on the year. The S&P 500 Index is nearing a bear market from January levels and is down 19% year to date while the Nasdaq appears firmly entrenched in a bear market, having fallen around 27% year to date.
Technology stocks were not the only ones facing pressure on the week. Retailers joined the slump after several reported disappointing margin results and lowered earnings outlooks on the year. Higher inflation and supply chain pressures have started to impact profit margins in a meaningful way. Higher goods prices have started to drive customers away from spending on discretionary items and toward staples. In addition, customer preferences have begun to shift from goods to services, resulting in higher than anticipated retail inventories. However, overall consumer spending remains relatively strong amid a backdrop of low unemployment and healthy consumer balance sheets.
Existing home sales slipped 2.4% in April as rising mortgage rates crimped buyer activity. Average 30-year mortgage rates have climbed to over 5.2% from around 3% a year earlier. Homebuyer sentiment has soured amid still-high prices and low inventories. New home starts slipped slightly, but support relative to existing home sales may be attributed to builder backlogs exacerbated by supply chain issues earlier in the year. Nearly 40% of existing-home sales occur in the spring, according to the National Association of Realtors.
U.S. growth is expected to be higher than China’s for the first time since 1976, according to Bloomberg. China is continuing to struggle with COVID-related lockdowns and severe curbs on activity while U.S. mobility continues to normalize. China’s growth target for the year is 5.5% but could be far lower unless restrictions are lifted soon. Around $5 trillion of COVID-related stimulus has been injected into China’s economy.
Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research, CNBC.com.
Important Information
This commentary was first published in the United States by MFS and is distributed in Canada by SLGI Asset Management Inc., with permission. MFS or MFS Investment Management refers to MFS Investment Management Canada Limited and MFS Institutional Advisors, Inc. The MFS® logo is a trademark of The Massachusetts Financial Services Company and is used with permission.
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Information presented has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy. This commentary may contain forward-looking statements about the economy and/or markets; their future performance, strategies or prospects. Forward-looking statements are not guarantees of future performance, are speculative in nature and cannot be relied upon.
Sun Life Global Investments is a trade name of SLGI Asset Management Inc., Sun Life Assurance Company of Canada, and Sun Life Financial Trust Inc., all of which are members of the Sun Life group of companies.
SLGI Asset Management Inc. is the investment manager of the Sun Life family of mutual funds; Sun Life Assurance Company of Canada is the issuer of guaranteed insurance contracts including Annuities, and Segregated Funds. Sun Life Financial Trust Inc. is the issuer of Guaranteed Investment Certificates.
