2nd April – 8th April 2022 | Another week in the markets
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As the markets continue to monitor the developments in Ukraine and await signals from the Federal Reserve, stocks traded mixed this week.
- Elon Musk is now a board member and the biggest shareholder of Twitter
- Rising interest rates have led to a dramatic decline in mortgage demand
- Shell expects to lose $5 billion as it divests from Russia
- Weekly jobless claims in the US are at a 53-year low pushing wages up
- A major loophole in the US’s ban on Russian diamond imports to be addressed
Taking stock | Twitter Musk-eteer | No way home | Goodbyes hurt | Taking a hike | Kya Surat hai? | Invest wisely
The markets ended the week on a weak note with S&P 500 and Nasdaq down by around 4%. Dow ended up reversing losses at the last minute and closed the week roughly neutral. US 10-year Treasury yield is at three-year highs at 2.37% and helped push the S&P Banking Index by 1.18%. All the interest rate sensitive lenders such as JPMorgan Chase & Co., Citigroup Inc., Goldman Sachs Group, and Bank of America rose.
On Monday, the Securities and Exchange Commission (SEC) filing revealed that Elon Musk, CEO of Tesla and SpaceX, is now the biggest shareholder of Twitter with 73,486,938 shares, which translates to an ownership stake of 9.2%. As a result of this news, Twitter shares surged 27.1% in Monday’s session and rallied again the next day when Twitter CEO, Parag Agarwal, announced that Musk is being appointed as a board member.
People expect Musk’s involvement in Twitter to be high considering how verbal he has been recently about being disappointed with the platform failing to adhere to free speech principles. Before Musk’s ownership went public, he also expressed his desire to build a new social media platform.
No way home
Home loan interest rates in the US have risen by 1.6 percentage points since the beginning of 2022. This has been the fastest run-up in home financing costs in the country since 1994. The week ended 1st April saw the average contract rate on a 30-year fixed mortgage rising from 4.8% to 4.9%, making it the fourth consecutive week of increases. This is the result of the Federal Reserve tightening the monetary policy in an attempt to curb record-high inflation. This is pushing the demand for mortgages down sharply – more than 40% from a year ago. From last week alone, the total mortgage application volume fell by 6.3%.
Here’s the 30-year fixed mortgage rate over the last few months:
Source: Macro Trends
As a response to Russia’s invasion of Ukraine, several Western oil and gas companies have been exiting Russia since March. These companies include Exxon Mobil, Shell, and BP. This exit comes at a huge cost and these oil and gas giants will most likely have to write off a combined $22 billion of Russian assets. Shell expects a hit of up to $5 billion in the first quarter with cash flows from operations being significantly impacted.
Taking a hike
The unemployment rate in the US, 3.6%, is at a new two-year low. The tightening labour market is boosting wages and improving working conditions. Walmart, for instance, is ramping up the pay for its in-house truck drivers, who will now earn between $95,000 and $110,000. This is 26% higher than the average for new drivers. The overall annual wage growth rate in the country is the highest in two decades as companies compete to secure and retain talent. Weekly jobless claims have fallen from 1,66,000 to 5,000 and now are at a 53-year low. Amongst worker shortages, the pays are expected to keep increasing. The downside of this is that inflation will be aggravated further resulting in more aggressive contractionary policy moves on part of the Federal Reserve.
Kya Surat hai?
In February, the US announced a ban on Russian imports of non-industrial diamonds. All the big brands in the jewellery industry like Pandora, Tiffany, and Cartier got on board but the impact of this ban on the global diamond supply chain was expected to be major. However, there is a major loophole – almost no diamonds that are used in American jewellery are technically classified as Russian. This is because India cuts and polishes 95% of the world’s diamonds and hence the country of origin as per US customs regulations isn’t Russia. A group of 11 congressmen have now written to the Treasury secretary to close this loophole and to work with India to restrict the sale of Russian-origin diamonds.
Markets, both at home and globally, have continued to slide this week owing to the deteriorating macro-economic environment. Given such volatility, it’s important to consider diversification tools to ensure your portfolio risk is minimal. Diversification across asset classes and geographies is the need of the hour and you can access a wide range of US stocks and ETFs by downloading the Appreciate app.
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