Hi, and welcome to PIGM Weekly Market Commentary for April 25, 2022. I'm Matt Dingee from the Strategic Investment Research Group or SIRG. SIRG is part of PIGM, the asset management division of Prudential Financial. 

The rising bond yields theme gripping markets continued last week amid hawkish comments from global central bankers. In the US, expectations broadened for a more aggressive front-loaded Fed policy tightening cycle with Fed Chair Powell stating that it's appropriate for the Fed to be tightening more quickly. All but assuring a 50 basis point hike at their upcoming May meet. 

Also, regional Fed President James Bullard and Mary Daly didn't rule out the possibility of an even bigger 75 basis point move, which would be the largest single meeting rate hike since 1994. However, that doesn't appear to be consensus thinking at the Fed with Cleveland Fed President Loretta Mester pushing back against a 75 basis point hike. Meanwhile, officials from the European Central Bank hinted at the possibility of a rate lift off in July and a total of three rate hikes in 2022, adding to market angst. 

Against this backdrop, treasury yields continued their upward climb with the two-year rising 27 basis points and the ten-year rising 7 basis points to finish at 2.9%. With yields rising further investment grade bond losses continue to pile up with the Bloomberg Aggregate Bond index down another 1% for the week. In fact, the index has lost 9.5% so far this year. Riskier high yield bonds also struggled for the week. 

Risk off sentiment also extended to the equity markets with the S&P 500 falling 2.7% its third straight week of losses growth stocks came under scrutiny amid a disappointing earnings release from Netflix and rising real yields, which briefly turned positive for the first time in two years. 

On the economic data front, the housing market was in focus last week and the results were mixed. The home builder sentiment index fell for a fourth straight week in April, but remained at a historically robust level as home price increases and construction costs have weighed on confidence. 

Despite weaker sentiment, building permits and housing starts unexpectedly rose in March driven by multifamily construction. However, existing home sales fell to the lowest level since June 2020 in March as sharply rising mortgage rates may be beginning to impact home buying. 

Purchasing managers indices were released for April also showing mixed results. In the U.S., manufacturing activity improved from already strong levels, but the services sector unexpectedly weakened as companies continue to grapple with higher prices, supply chain delays, and labor constraints. 

In the UK, PMI signal is softening in the pace of economic growth in April, all be it from robust levels caused by slowing demand for both goods and services amid higher prices, lingering COVID, and lost trade as a result of Russian sanctions. And in the eurozone, PMI is pointed to accelerating growth as loosened COVID restrictions led to a rebound in services sector demand, which offset a slowing of manufacturing. 

Shifting gears Q1 earnings season picked up in earnest last week and the broad takeaways from earnings reports thus far are that while cost, pressures and supply challenges linger, consumer demand remains robust. 

The highlight report came from Netflix, who missed on earnings, reported its first subscriber loss in a decade and guided lower for Q2. As a result, the stock suffered its worst trading day since 2004. 

Turning to this week, it will be quiet from a “fed-speak" perspective as we're in the blackout period in advance of the FOMC meeting on the economic calendar. 

The key releases include PCE inflation, the Fed's preferred measure, which comes out in March, and investors will be looking for evidence that perhaps we've reached the peak in inflation. 

Also, the Employment Cost Index comes out for Q1 and this report will be closely scrutinized because the Fed referenced its acceleration last year as a catalyst for their hawkish policy pivot. 

In addition, we'll get the preliminary reading of U.S. GDP for Q1, where the street is expecting growth to have slowed sharply from the brisk 6.9% pace last quarter. Lastly, Q1 earnings season continues with many mega cap stocks reporting, including Alphabet, Amazon, Apple, Microsoft, and Meta. 

Have a great week and we'll speak again next Monday.