Weekly Market Wrap 18/03/2022
BY O-IM PUBLISHED ON 18 March 2022
President Zelensky made a historic war-time address to the US Congress on Wednesday, informing US lawmakers that Ukraine desperately needs their help. After this rallying speech, Joe Biden announced a $800 million security assistance package. Peace talks between Russia and Ukraine were said by both sides to be moving closer, however continued Russian attacks of Ukrainian civilians are not showing investors any tangible progress of these negotiations. The Federal Reserve delivered a 0.25% interest rate hike as it began to take measures against multi-decade high levels of inflation. The Bank of England has now raised its base rate to 0.75% and issued a further warning to investors about inflationary pressures.
The S&P 500 gained 4.63% to 4,398 whilst the Dow gained 4.31% to 34,372. This week the Federal Reserve delivered its first interest rate rise since the pandemic, raising its base rate by 0.25%. It is projected that the federal funds rate could be as high as 2.00% by the end of the year. Jerome Powell told investors that the Fed would not shy away from raising rates aggressively to fight the inflation that is significantly impacting US households. Joe Biden is set to talk to Chinese president Xi, in order to deter China from assisting Russia with military action in Ukraine. China has yet to formally condemn Russia’s invasion of Ukraine.
The FTSE 100 ended the week up 2.88% at 7,361. Led higher at the start of the week by financial stocks who were expecting an increase in lending costs and commodity-linked stocks. The Bank of England did not surprise investors this month and voted 8-1 to deliver a 0.25% interest rate increase, taking the Bank Rate back to its pre-pandemic level of 0.75%. The bank warned that inflation levels could rise even higher than their 8% April forecast in 2022, ahead of next week’s budget in which Rishi Sunak will face mounting pressure to tackle the cost of living crisis that affects many UK households.
The Euro Stoxx 50 ended the week up 4.62% to 3,869, the DAX gained 4.67%, reaching 14,300 and the CAC 40 was up 4.70% to 6,572. European indexes were pushed higher this week as both Ukraine and Russia announced that negations were making progress with president Zelensky confirming that negotiations were becoming “more realistic”. Many investors also saw the recent heavy falls in European markets as a buying opportunity. Despite a strong week for European markets, stocks fell on Friday morning as no tangible change on the war in Ukraine could be seen. Data released on Friday showed that the Eurozone was in a trade deficit for the third consecutive month in January, with raw materials imports drastically increasing.
The Russian central bank announced on Friday that it would keep its interest rate at 20% and warned that it would be entering a period of “increased inflation”. Estimates now show that the Russian economy is forecast to contract as much as 8% in 2022. Additionally, the interest payments on two Russian dollar bonds have reportedly been paid in full and in US dollars, avoiding what would’ve been the country’s first bond default since 1917.
Fixed Income .
The US 10-Year Treasury yield has risen by 0.14% to 2.14% this week after the Federal Reserve raised interest rates to 0.25% in a move to slow down the rapid price growth seen in the global recovery from Covid-19. Policymakers now estimated the federal funds rate to be between 1.75% and 2% by the end of 2022.
Brent Crude fell 4.92% to $107. Despite a weekly fall, oil remains at an elevated price as peace talks between Russia and Ukraine appear to be making little progress, which could lead to extended period of disruption to the global oil supply.
Gold fell 2.14% this week to $1,930. Demand for the safe haven asset has dropped as the tensions between Russia and Ukraine have begun to subside with peace talks being said to have made some progress. Additionally, the first Fed rate hike since 2018 has made holding gold slightly less attractive as a non-income yielding asset.
The Week Ahead
Monday – China Interest Rate Decision
Tuesday – RBA Governor Speech
Wednesday – UK RPI & CPI; UK Budget; BoJ Meeting Minutes
Thursday – Eurozone PMI; UK PMI
Friday – EU Leaders summit; UK Retail Sales
*Price changes as of last week’s close unless stated otherwise.