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Weekly Market Pulse - Week ending February 11, 2022

Market Developments

Equities:

Equities kicked off the week strongly, before declining later on another inflation surprise. The U.S. consumer price index accelerated to 7.5% year over year, and U.S. Federal Reserve official James Bullard said he was in favour of a 50 basis point hike come March and would support raising rates by 100 bps by July. Friday afternoon saw a further selloff due to investor uneasiness amid reports that the U.S. believes Russia could escalate its military action against Ukraine next week. Canadian markets held onto gains on higher oil prices, while international markets had already closed for the week.

Fixed income:

Yields initially rose sharply, with the U.S. 10-year rising as much as 14 bps as markets were pricing in as many as seven hikes for the year. However, potential of further Russian military action saw yields revert and end the week relatively flat.

Commodities:

Oil prices rose on news of potential further Russia-Ukraine tensions. Gold also surged on the news on a flight to safety. 

Performance (price return)

Performance table

  As of February 11, 2022

Macro developments

Canada

A quiet week with no notable data releases for Canada.

U.S. – CPI accelerates again; University of Michigan consumer sentiment wanes

U.S. CPI rose 0.6% seasonally adjusted in January, accelerating the year-over-year reading to 7.5%. Rising prices of goods continue to be the driving force, increasing 0.8% in the month, while services rose 0.6%. Food, electricity, and shelter were the largest contributors.

The University of Michigan Consumer Sentiment Index declined to 61.7 in February, from 67.2 in January. Weakening financial prospects continue to weigh heavily on consumers. Consumers expressed concerns over inflation, government economic policies, and a less favourable economic outlook. Interestingly, the decline was entirely in households with incomes of US$100,000 or more. Inflation expectations for 2022 rose to 5.0%.

International – German industrial production declines; U.K. GDP increases

German industrial production declined 0.3% in December, widely missing market expectations of a 0.5% increase. Energy production fell 0.7% and construction declined 7.3%. Manufacturing production had increased 1.2%, attributed to an increase for capital goods.

U.K. real GDP saw a 0.2% contraction in December on renewed COVID restrictions. Services output declined 0.5%, while production rose 0.3%. Consumer-facing services bore the brunt as output declined 3.0% in the month. For the fourth quarter, GDP rose 1.0% quarter over quarter. Household consumption grew 1.2%, government spending rose 1.9%, and investments increased 2.2%.

Quick look ahead

Canada – CPI (February 16); Retail sales (February 18)

Canadian CPI is expected to rise a further 0.6% in January, supported by higher gasoline prices. The year-over-year reading, however, should remain unchanged at 4.8%.

Retail sales on the other hand are expected to have slowed in December, according to StatsCan’s preliminary estimate. Poor auto sales will weigh on results, but overall spending appears to have been weak for the month. Disruptions from flooding in B.C. and the Atlantic provinces in November could have continued into the month. A preliminary estimate for January will also be available.

U.S. – Empire Manufacturing Survey (February 15); Retail sales and industrial production (February 16)

The Empire Manufacturing Survey for February is expected to show a slight rebound. However, trucker protests at the U.S.-Canada border could further strain supply chains, and higher prices and worker shortages could also continue to be areas of weakness.

Retail sales are expected to increase 1.8% according to market consensus, as a large surge in auto sales will outweigh contractions in other sectors. The decline in sales could also prove to be shallower than in previous waves.

Lastly, industrial production should show a slight gain for January.

International – Japan’s GDP (February 14); Chinese, Japanese, U.K. CPI (February 15); machine orders

Japanese GDP is expected to have expanded 6.0% quarter over quarter following the large 3.6% drop in Q3. Pent-up demand amid a reopening economy should have supported consumer consumption. Solid exports should also have contributed.

Chinese CPI is expected to slow to 1.0% in January, from 1.5% in December. Food prices will once again drag, with pork prices recording ever steepening drops.

Japanese machine orders likely fell in December as Omicron spread globally. A forecast for Q1 based on data from manufacturers will also be released.

U.K. CPI is expected to accelerate to 5.6% year over year in January from 5.4%, once again driven by rising food prices. The reading will be of particular interest as markets are contemplating the potential for a double hike at the next Bank of England meeting.

Lastly, we have Japanese CPI, which is expected to have slowed slightly to 0.6% year over year in January. The prices of food and energy should have supported the monthly reading, but higher COVID cases will see the year over year reading decline.

Aviso Wealth Inc. (“Aviso Wealth”) is the parent company of Credential Qtrade Securities Inc. Aviso Wealth is a wholly-owned subsidiary of Aviso Wealth Limited Partnership, which in turn is owned 50% by Desjardins Financial Holdings Inc. and 50% by a limited partnership owned by the five Provincial Credit Union Centrals and the CUMIS Group Limited.

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Northwest & Ethical Investments L.P (“NEI” or “NEI Investments”) is a subsidiary of Aviso Wealth; and NEI Funds are related issuers of Credential Qtrade Securities Inc.

This material is for informational purposes only. While this material has been compiled from sources believed to be reliable, Qtrade Investor does not guarantee the accuracy, completeness, timeliness or reliability of this information. Information, figures and charts are summarized for illustrative purposes only and are subject to change without notice. All investments are subject to risk, including the possible loss of principal.