Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

CHINA, the Fed and the war in Ukraine. Investors have returned from their Easter break to the same menu of concerns they left before the long weekend.

Shanghaied

It’s not exactly a China Crisis, but the news coming out of the world’s leading emerging market economy is not good. Shanghai remains in lockdown nearly a month after the country’s commercial and financial hub was closed in a bid to contain the worst Covid outbreak in two years. That suggests that March’s better than expected 4.8% GDP growth won’t last into April. And the first contraction in retail sales since July 2020 points to a struggling Chinese economy. The central bank announced 23 measures on Monday to encourage infrastructure spending and support the property sector. Last week the reserve requirement was cut to inject more liquidity into the financial system. It’s no wonder that analysts are taking the red pencil to their full year growth forecasts. Barclays is looking for 4.3%, well below the government’s target of 5.5%, itself the lowest rate of growth in decades.

Squeezed

Central bankers on both sides of the Atlantic are in the spotlight this week. The Fed’s Jay Powell, ECB’s Christine Lagarde and the Bank of England’s Andrew Bailey are all due to make speeches this week. Alongside a raft of inflation releases in the Eurozone and Japan, that means monetary policy remains front and centre. So, it’s appropriate that this could be the week when the most widely watched real, inflation-adjusted bond yield finally turns positive. The 10-year Treasury bond yield is poised to rise above medium-term inflation expectations. That might sound like a technical thing, but it matters. It starts to make owning government bonds look more attractive. And it keeps up the pressure on the shares of companies whose profits lie a long way off into the future, such as technology growth companies. It also tells us that today’s high inflation rates may soon be on the way down to more manageable levels.

Shell-shocked

Meanwhile, eight weeks on from the invasion of Ukraine, the war has shifted from the predicted rapid victory for Russia to what could be a terrible war of attrition in the east of the country. Apart from the human suffering, that will have a big impact on energy and other financial markets. Sanctions will continue, the cost of oil and gas will remain high, and the economies most exposed in Europe will struggle to grow.

Meanwhile…

This is the difficult backdrop to the unfolding first quarter earnings season. Actually, it’s so far, so good. A week in, earnings are up 7.5% but it is early days. According to FactSet, a data company, growth in the quarter will end up closely to 5% as tighter profit margins offset still good revenue growth, fuelled by the booming energy sector. Inflation and supply chain disruptions are top of the list of concerns cited in company results announcements.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.

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