In a very volatile week, U.S. stock indices ended significantly lower but developed international and emerging markets ended the week modestly higher.  The S&P 500 stopped just short of a 20% drop from its peak which traditionally has been the definition of a bear market.

China showed a sharp economic contraction in April due to the severe covid lockdowns.  This likely will further affect supply chains in the U.S.  China bucked the global trend and cut interest rates for five years and longer.  China also entered talks with Russia to buy more oil at a discount to restock their strategic petroleum reserve.

The war in Ukraine hits the three month mark with Russia focusing on the eastern and southern parts of the country.  However, stiff resistance by Ukraine has stalled Russia’s progress in many areas.  About 900 fighters in Mariupol’s Azovstal iron and steel works have been evacuated but taken to prison camps in Russia.  The U.S. has approved another $40BN in weapons and humanitarian aid to Ukraine with other countries also pledging billions more.  Finland and Sweden have formally submitted applications for NATO membership prompting Russia to cut off natural gas supplies to Finland.  Membership for Finland and Sweden has been supported by most NATO countries with the exception of Turkey.  Turkey is opposing their membership for taking in members of the Kurdistan Workers’ Party (PKK), which has been designated as a terrorist organization by many countries. 

Treasury yields fell with the 30-year bond yield at 2.966% and the 10-Year note at 2.792%.  U.S. crude oil rose to $112.70 a barrel and natural gas rose to $8.182 per MMBTUs.  The U.S. dollar index fell to 103.06.  Gold rose to $1843.70 an ounce.

In the economic numbers:

• China reported:
  • Industrial output in April declined 2.9% from a year ago.
  • Retail sales fell 11.1% from a year ago.
  • Unemployment rose to 6.1% and youth unemployment hit an all-time high of 18.2%.
  • The People’s Bank of China met and took the following actions:
    • Short term interest rate was left unchanged at 2.85%.
    • The five year or longer benchmark rate was lowered from 4.6% to 4.45% due to growth concerns based on Covid shutdowns. 
• U.K. inflation in April was up 9% from a year ago, up from 7% year over year in March and a 40 year high.
• The Commerce Department reported retail sales rose a seasonally adjusted 0.9% in April, not adjusted for inflation.  March retail sales were revised up to a 1.4% gain. 
• The Federal Reserve reported that industrial production rose 0.8% in April.
  • Auto production rose 3.9% in April as some supply chains have improved.
  • Excluding autos industrial production rose 0.5%.
  • Business equipment production rose 1.1%.
  • Utility production rose 2.4%.
  • Oil and gas drilling increased 3.2% and is up 54.3% from a year earlier.
• The National Association of Realtors reported that existing home sales fell 2.4% in April vs March for the slowest pace since June of 2020 on limited supply and rising interest rates.
  • The median home price of an existing home sale rose to $391,200 up 14.8% from last April.
• The Labor Department reported:
  • Seasonally adjusted first time claims for unemployment rose to 218,000, up from a revised 199,500 in the prior week. 
  • The 4-week moving average of claims, designed to smooth out volatility, rose to 192,750.
  • The number of people receiving unemployment benefits fell to 1.3MM, the lowest since December 1969.
  • For the full unemployment report go here:  https://www.dol.gov/ui/data.pdf .
• The EIA weekly oil report is here: http://ir.eia.gov/wpsr/wpsrsummary.pdf .  Also, the EIA reported in the prior week:
  • Field production of crude oil rose from 11.8MM BPD to 11.9MM BPD.
  • Natural gas storage rose 89BN cubic feet and is below the 5-year average at this time of year.
• Baker Hughes reported the number of active oil rigs rose 13 to 576.  The number of active natural gas rigs rose 1 to 150.

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Loren C. Rex, CFP^®, MA                                                                     Erik A Smith, AIF®

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 These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.  The Indices mentioned are unmanaged and cannot be invested into directly.