The FTSE 100 rose 0.4% over the week.

The threat of a trade war with the EU loomed as the UK warned Brussels that it had “no choice but to act” on bringing forward legislation to unilaterally scrap parts of the Brexit deal. The warning comes after talks over Northern Ireland’s trading rules ended in deadlock.

UK GDP contracted 0.1% in March, bringing the first-quarter growth rate to 0.8%. Growth was flat in February.

UK retail sales fell 0.3% on a year-on-year basis in April as shoppers tightened their belts in response to the cost-of-living crisis.

The S&P 500 slid 2.1% over the week while the tech-heavy Nasdaq lost 3.1%. A late rebound on Friday meant the S&P narrowly avoided falling into an official bear market, defined as a decline of at least 20% from a recent peak. In contrast, the Nasdaq is down almost 30% since the start of the year.

Roughly 80% of the more than 430 S&P 500 constituents that have reported first-quarter results beat estimates, with average earnings growth being 9% compared to estimate of 5%.
The Federal Reserve warned that a sharp increase in interest rates to tame fresh inflation shocks would pose a risk to the American economy, saying that there was a “higher than normal” chance that trading conditions in US financial markets will suddenly deteriorate.

US inflation rose at an annual rate of 8.3% in April, with increases in the cost of new cars, food, airline fares and housing the biggest drivers. While the figure was down from a 40-year high of 8.5%in March, it was higher than the market had expected.

University of Michigan consumer sentiment index fell to 59.1 in May, from 65.2 in April and the lowest level since August 2011.

Elon Musk said he had put his $44bn takeover of Twitter “on hold” amid concerns over the number of spam and fake accounts on the platform.

The FTSEurofirst 300 gained 0.7% over the week.

Of the 452 companies in Europe’s Stoxx 600 share index that have reported first-quarter earnings to date, average earnings per share (EPS) grew by 42%, well exceeding analysts’ expectations of 20% growth. Growth in EPS has been driven by buoyant performances for Europe’s energy sector, with collective earnings up 209% cent year-on-year, significantly higher than estimates of 73%.

However, earnings also exceeded expectations in sectors including consumer goods, distribution services, health and transport, suggesting that European consumer sentiment is being buoyed by a strong jobs market and large savings built up during the pandemic.

ECB president Christine Lagarde signalled that she would support raising the European Central Bank’s main interest rate in July.

Gazprom, Russia’s state-owned gas supplier, has said it will cut gas shipments to Europe through the Yamal pipeline after the Kremlin imposed sanctions on European gas companies.

Hungary continued to resist an EU oil embargo, demanding that shipments of Russian oil via pipelines should be exempted from the EU’s proposed ban.

French president Emmanuel Macron called for the creation of a broad “community” of European democracies to include non-EU members, such as the UK.

The Nikkei 225 dropped 2.1% over the week.

Pacific Basin
Chinese producer prices eased to a year-on-year growth rate of 8.0% in April from an 8.3% rise in March.

Hong Kong cut its growth forecast for 2022 to between 1 and 2%, from an earlier projection range of 2 to 3.5%, citing the resurgence of Covid-19 and US interest rate rises. The central bank also intervened to maintain the dollar peg for the first time in three years.

Chinese exports increased 3.9% in April from a year earlier, the slowest pace of growth in two years, as supply chains were choked by lockdowns and higher inflation sapped consumer spending in Europe and the US.

Emerging Markets
India banned exports of wheat “in order to manage the overall food security of the country and to support the needs of the neighbouring and other vulnerable countries”. The move is likely to push food prices higher and fuel hunger in poor countries that depend on imports of the commodity. The U-turn came after inflation surged to 7.79% in April, the highest since May 2014.

Turkish authorities increased pressure on the country’s banks to limit corporate clients’ purchases of foreign currency in an effort to halt a renewed slide of the lira.

The yield on the 10-year US Treasury bond rose as high as 3.20% before closing the week at 2.93%, a drop of 15 basis points over the week.

The yield on the 10-year German Bund closed the week at 0.94%, a drop of 19bps over the week, while the 10-year UK Gilt closed at 1.75%, marking a fall of 25bps over the week.

The sell-off in equites has now started to affect other risk assets. US high-yield bond spreads have widened sharply this month, particularly for Triple C-rated bonds, the lowest quality within the high-yield universe. European high-yield bonds have also risen sharply since the start of the year to the widest level since July 2020.

Wheat prices rallied amid predictions that the global wheat crop is set to fall for the first time in four years. Ukraine’s output is predicted to decline by more than a third, with Ukraine accusing Russia of plundering grain stocks and machinery.

Copper prices dropped below £9,000 a tonne for the first time in more than six months amid weak Chinese demand.