Much like stock markets, writing the weekly round-up can be a volatile affair. Some weeks there is little to report on, while in other weeks there are a multitude of topics to cover – I’ll let the readers guess what this week is!
Elon Musk appeared to win the race to buy Twitter, with the board agreeing to sell the company for $44bn. The deal, if completed will be one of the largest leverage buyouts on record. It was not all celebrations this week for Musk however, with his other prized asset, Tesla, falling circa. 10% on Tuesday, wiping out $108bn from the market cap of the company. Investors have become concerned about Musk’s ability to run both Twitter and Tesla. Shares such as Tesla and Netflix, which fell heavily last week, have been firm favourites with US retail investors, but the mood music has begun to shift, with investors questioning whether the growth rates of these companies are sustainable.
Tesla’s fall on Tuesday compounded a difficult day in US equity markets, with the tech-heavy NASDAQ index falling close to 4% on the day. Microsoft, the second largest company in the S&P 500, posted very strong Q1 earnings on Tuesday evening, which helped bring some calm back to the markets later in the week.
Gas prices in Europe remained spiked this week, with Russia cutting off exports to Poland and Bulgaria, two nations that Russia declared “unfriendly”, who refused to make payments for gas in Roubles. Oil prices also rose this week, moving above $100 a barrel as investors begin to consider future Russian sanctions.
For many of us in the western world COVID lockdowns are hopefully a thing of the past; the same cannot be said for China with Shanghai under a strict lockdown and fears Beijing may be next. Shanghai has been in a strict lockdown for a month, putting pressure on Chinese economic growth as well as the global supply chain. Chinese President XI Jingping highlighted this week his willingness to help support the domestic economy with increased investment into infrastructure and construction projects to help boost growth.
The US Dollar has continued to rally against a basket of currencies this week, including the Euro and Sterling. The Euro/USD rate has fallen to a five-year low on the back of slowdown fears in Europe, while Sterling fell to its lowest level in two years against the USD this week. The moves were in part driven by weak UK economic data, with both consumer confidence and retail sales disappointing. At a portfolio level we have recently increased our USD exposure, so have benefitted from the moves this week.
US consumer confidence also missed consensus, although housing data was more positive; the US House Price Index showed prices were up 19% year-on-year, a staggering rise. The popular 30-year US mortgage rate is now around 5.3%, the highest level in over a decade – this could act as a headwind to the housing market and slowdown the red-hot property sector.
With so much apparently going on in markets currently it is very important to stay aligned with one’s investment process and maintain a long-term time horizon. The short-term noise can in fact create opportunities for the long-term investor. We have felt that is the case with US government bonds and Japanese equities, where we have increased exposure recently.
Andy Triggs | Head of Investments, Raymond James, Barbican
Risk warning: With investing, your capital is at risk. The value of investments and the income from them can go down as well as up and you may not recover the amount of your initial investment. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors.