Investment Insights Notes from the Kitchen

Global Stock Rally Loses Steam

  • Jun 08, 2022
  • Andrew Gillham

Global stocks struggled to push onwards against the headwinds of inflation and a deteriorating macroeconomic outlook. The blue-chip S&P 500 fell 0.89% and the technology focussed Nasdaq fell 0.58%. In the Platinum Jubilee holiday shortened week, the FTSE 100 edged 0.11% higher.

US stock markets started off on the front foot but ultimately lost some ground after more companies, including Microsoft, cut revenue and profit forecasts for the current quarter. The software giant, which is the second largest listed US company, cited the strong dollar as particular concern given that it generates half of its earnings overseas. The US Dollar index has strengthened more than 6% so far in 2022 and by 13% over the past 12 months.

The more tepid outlook is significant to the broader economy as it is likely to impact jobs and recruitment over the coming months. A senior executive at Microsoft has already told staffers that should be more cautious adding new roles and to request permission before doing so.

The mood was echoed at Tesla and its shares tumbled 9% on Friday after chief executive Elon Musk revealed he is considering a hiring freeze and cutting up to 10% of the company’s headcount due to a “super bad feeling” about the economy.

His warning followed two emails which he told staff “remote work is no longer acceptable” and demanded they must show up to the office for at least 40 hours per week. In response to a question on Twitter about the workers who challenge the directive, Musk replied “they should pretend to work somewhere else.”

An eventful week for Musk was rounded out with a threat to scrap his $44 billion takeover of Twitter. His legal team asserted that Twitter is committing a “material breach” by refusing to disclose more detailed information about the number of bots and fake accounts on the social media platforms. Twitter shares have fallen to $39, more than 25% below Musk’s $54 per share offer price.

The US nonfarm payrolls report for May somewhat contradicted the more cautious outlook. It was revealed that 390,000 jobs were added during the month and the unemployment rate held steady at 3.6%, just 0.1% above where it stood at the start of the pandemic. The leisure and hospitality sectors accounted for more than 80,000 of the additional hires, offsetting a 61,000 fall in retail jobs.

It was also reported that there are 11.4 million job vacancies in the US, or 1.9 jobs for every unemployed person. The tight labour market in the US has underpinned solid wage growth and average hourly earnings rose 5.2% from a year earlier in May.

Moving across to this side of the Atlantic, annual inflation in the Eurozone hit a record high 8.1% in May, piling more pressure on the European Central Bank to end its negative interest rate policy this summer. The price pressures from disrupted global supply chains and pent up post pandemic demand have been amplified by the conflict in Ukraine.

Surging inflation and the prospect of higher interest rates have caused havoc in bond markets which would normally do well at times heightened geopolitical risk and stock market volatility. UK Government and Sterling corporate bonds have fallen 14% and 11% respectively so far this year.

Brent crude slipped back to $119 a barrel after Opec announced it will ramp up production by nearly 650,000 barrels a day in July and August. The oil cartel didn’t exclude Russia from contributing to the increased output but it has been reported Saudi Arabia is willing to make up any shortfall as a result of any more sanctions.

(Cover Image Source: Jason Briscoe)

TEAM Asset Management is a trading name of Theta Enhanced Asset Management Limited which is regulated by the Jersey Financial Services Commission.