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Weekly Market Pulse - Week ending February 18, 2022

Market Developments

Equities:

Equities fell for the week. Markets closely watched Ukraine-Russia developments as tensions continued to build. NATO is awaiting evidence of a Russian pullback as Russia said it had no plans to attack. On the economic side, minutes of the Federal Open Market Committee of the U.S. Federal Reserve showed little indication that the Fed was looking at a 50-basis point hike. Fed fund futures pricing of a 50-bp hike dropped significantly but is not being completely priced out yet.

Fixed income:

Yields were mixed for the week, as concerns of Ukraine-Russia tensions were offset by a seemingly less hawkish Fed.

Commodities:

Oil prices fell despite the Ukraine situation. There was news that a potential Iran nuclear deal could be reached with the U.S., which could see more oil hit the market. Gold prices rose on a flight-to-safety reaction.

Performance (price return)

Performance table

  As of February 18, 2022

Macro developments

Canada – CPI surges; Retail sales fall

Canadian CPI rose 0.9% in January, the largest increase since January 2017. Gains were broad based, but increases were once again led by goods, which rose 1.5% with services increasing 0.3%. Notable increases include gasoline prices rising 4.8% and food prices growing 1.4%. On a year-over-year basis, CPI accelerated further to 5.1%, the highest reading since 1991.

Retail sales fell 1.8% in December, following the 0.8% increase in November. Sales fell in 8 of 11 subsectors, with the largest declines in furniture (-11.3%), clothing (-9.5%), and building material and garden equipment (-5.0%); 15% of respondents reported disruptions from flooding in B.C. and the Atlantic provinces. StatsCan estimates that sales bounced 2.4% in January.

U.S. – Fed minutes point to inflation; Empire Manufacturing Survey unchanged; Retail sales rebound; Industrial production rises on utilities

Federal Open Market Committee minutes acknowledged broadening inflationary pressures and that projected inflation risks were skewed to the upside. As a result, Fed officials noted that it would be appropriate to remove policy accommodation at a faster pace than they currently anticipate if inflation does not come down. There was little mention of reducing the central bank’s balance sheet or of any Fed appetite for a 50-basis point hike.

The Empire State Manufacturing Survey showed that business activity was little changed in New York State in February. The General Business Conditions Index rose to 3.1, from -0.7 in January. New orders and shipments were relatively unchanged. The unfilled orders index came in higher showing continued solid demand. Nevertheless, employment continued to indicate solid gains. However, delivery times and both input and output prices continued to rise as supply disruptions persist.

Retail sales rebounded 3.8% seasonally adjusted in January, after falling 2.5% in December. Sales were driven by nonstore retailers (+14.5%), furniture stores (+7.2%), and motor vehicle dealers (+5.7%).

Industrial production rose 1.4% in January, following the 0.1% decrease in December. However, the increase was driven by utilities, which surged 9.9% due to heating demand from cold weather. Mining production increased just 1.0%, and manufacturing was even more muted at 0.2%. Capacity utilization rose 1.0% to 77.6%. 

International – Japanese GDP supported by strong consumption; Japanese CPI remains muted; Japanese machine orders rise, with weak outlook; Chinese CPI decelerates; U.K. CPI accelerates

Japanese GDP rose 1.3% seasonally adjusted in the fourth quarter, or 5.4% annualized. Household consumption was the largest driver, rising 2.8% as spending rebounded as the states of emergency in response to COVID were lifted. Solid exports driven by strong global demand also contributed. On the other hand, business investment declined and government spending fell.

Japan’s consumer price index rose 0.1% seasonally adjusted in January, matching the 0.1% increase in December. The increase was driven by fresh food prices, which rose 5.7% in the month. Other notable moves include utilities rising 1.2% and clothing declining 1.8%. Excluding fresh food, prices were flat for the month. On a year-over-year basis, CPI slowed to 0.5% from 0.8%.

Japanese machine orders rose 3.6% in December, following the solid 3.4% increase in November. The reading beat market consensus, which had expected a decline on Omicron worries. Manufacturing orders rose 8.0%, and government orders rose 6.7%. However, the forecast for Q1 2022 came in weak. Manufacturers expect machine orders to decline 9.6% in the first quarter on weak demand from the both the domestic private sector and overseas.

Chinese CPI rose 0.4% in January, reversing the 0.3% decline in December. Transportation and communication prices rose 5.2%, and recreation and education increased 5.2%. However, food prices continue to weigh on CPI, declining 1.8%. The year over year reading declined to 0.9%, from 1.5%.

UK CPI declined 0.1% in January, posting the first decline in a year. The prices of services and goods both declined 0.1%. The largest declines were seen in industrial goods, clothing, and transportation. However, year-over-year CPI increased to 5.5% on positive low base effects, from 5.4%.

Quick look ahead

Canada – CFIB small business sentiment (February 22)

A quiet week in terms of data for Canada. The CFIB Business Barometer will provide an update on how small businesses are recovering from the Omicron variant.

U.S. – Markit PMI and Conference Board consumer sentiment (February 22); Durable goods orders, personal income and spending (February 25)

The preliminary release of the February iteration of Markit’s purchasing managers’ index will be available, and will provide an early indicator of how firms are faring. Omicron worries should have declined, but supply disruptions look to continue to be a major hurdle.

The Conference Board consumer sentiment reading is expected to post a slight decline. Consumers will likely show a large amount of concern about inflation despite the strong labour market. The University of Michigan reading saw consumers worried about inflation and financial prospects.

Durable goods orders could see a further recovery. The transportation sector remains depressed, and firms have shown relatively strong appetite for capital expenditures.

Personal incomes are expected to post a slight decline. Although wage income should come in higher, households will no longer receive child tax-credit payments. Consumption on the other hand could have continued to make gains.

International – Japan and Eurozone PMI (February 21); Germany ifo survey (February 22)

Internationally, numerous surveys will provide a lot of soft data for the week.

The preliminary Japan and Eurozone Markit PMIs for February will provide a sneak peak into the global recovery of Omicron as economies reopen and recover. The usual capacity and supply disruption issues will be other points to watch.

The Germany ifo survey captures the views of professionals. The business climate in the country has been on a downtrend. The Omicron wave looks to be retreating, so the survey may show a renewed upturn.

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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.