UK ECONOMIC RECOVERY SLOWS AS CONSUMER CONFIDENCE IS KNOCKED BY RISING PRICES

RUSSIAN INVASION CONTINUES TO RATTLE ENERGY MARKETS AND DRIVE INFLATION IN THE SHORT TERM

This week the war in Ukraine has had a significant impact on markets as Russia suspended gas flows to Poland and Bulgaria. The move increases the risk of a large energy disruption in Europe, which until now had seen supplies remain stable. While there are certainly good reasons to want to cut the use of Russian oil and gas, until there is an alternative in place much of Europe remains dependent on it. The specific targeted cut off was probably meant more as a warning than a threat but it has refocused efforts to find a way to reduce reliance on Russia, especially in Germany.

Elsewhere the war’s effects continue to be seen in rising prices across the world, with European figures out this week showing inflation above 7% in places. There is some suggestion that we might be seeing light at the end of the tunnel, and we might be reaching the peak. Amazon certainly think so with commentary in its earnings report this week suggesting it is now over capacity following an easing of the post lockdown labour shortage and could even look to reduce its workforce.

GLOBAL: COVID PROBLEMS PERSIST DESPITE MOVE TO LIFE POST-PANDEMIC

Developed countries continue to move to a post-Covid world. Dr Anthony Fauci, President Biden’s chief adviser on Covid-19, said the country had moved out of the pandemic stage of the illness and European Commission president Ursula vonder Leyen said the region is coming out of emergency Covid management as case numbers and hospitalisation continue to fall. However, both von der Leyen and Fauci said measures would still be needed to manage the disease and guard against future outbreaks.

The ongoing economic impact of Covid can be seen in US GDP. Overall, US GDP fell 1.4% in the first quarter of 2022 compared to the same period last year. Although consumer demand is holding up, Covid related disruption have contributed to a growing trade deficit and reduction in business inventories. China’s zero Covid policy also continues to cause problems. Beijing appears likelty to join Shanghai in total lockdown but any further slowdown in China’s economic growth could have a wider implication of global trade.

UK: SECTORS WTH PRICING POWER RESILIENT IN FACE OF INFLATION

Rising costs remain a considerable worry for many businesses. The Federation of Small Businesses said almost half of its members expect to see no growth this year due to rising costs. Businesses with higher pricing power are in a strong position in the face of high inflation. Reckitt Benckiser said its ability to pass on price rises has offset falling sales and Unilever is raising prices by an average of 8% with a small reduction in sales volume. Procter & Gamble and Nestle have recently increased prices with little or no effect on their sales. Banks are also benefitting from rising revenues and Barclays, Natwest and Standard Chartered all reported rising profits.

There are signs that inflation is starting to slow. Eurozone inflation rose to 7.5% in April driven by the surge in energy prices. However, energy costs are already easing in the inflation data as prices come off their recent post-invasion highs and price rises from this time last year begin to fall out of calculation.

EQUITIES: EARNINGS UPDATES SHOW MIXED FORTUNES FOR BIG TECH

A busy week for US technology companies brought updates from Amazon, Alphabet, Microsoft, Meta, Apple and Twitter. Markets have been looking for signs of a general slowdown after last week’s poor update from Netflix. Alphabet said slowing ad revenue growth at YouTube contributed to an 8% fall in profits and Twitter’s revenue growth also came in below estimates. These results contributed to further volatility this week and the Nasdaq index fell almost 4% on Monday.

Not all the updates where negative. Microsoft said growth remains robust, particularly for its Azure cloud service, and Paypal reported rising revenues and users. Amazon and Apple showed a mixed outlook for tech stocks. Apple warned supply chain problems could cost it up to $8bn this year but this is against a 6% increase in Q1 profits to £25b. Amazon reported falling online sales but total revenues are still rising and predicts falling staff costs. With no obvious pattern of slowing growth tech stocks managed to recover most of their losses.