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Weekly Market Pulse - Week ending February 25, 2022

Market Developments

Equities:

Markets initially fell before recovering as news that Russia had invaded Ukraine hit headlines. Uncertainty saw investors rush for an exit. The S&P 500 Index was down as much as 5% during the week, but was able to recover. On Feb. 24, the S&P 500 Index was down as much as 2.6% before ending the day up 1.5% as sanctions against Russia were announced. These sanctions did not include key market concerns such as oil and the SWIFT banking system, factors that could severely disrupt the flow of trade. U.S. President Joe Biden said that the U.S. has no intention to fight Russia, but troops would be stationed in Europe to defend NATO allies.

Fixed income:

It was a volatile week for bonds. The U.S. 10-year Treasury yield fell as low as 1.85 during the week before ending the week higher.

Commodities:

Oil prices ended the week slightly higher. Crude oil prices had hit US$100 at its peak during the week on initial news of the invasion, but receded quickly as sanctions were not put on the commodity. 

Performance (price return)

Performance table

  As of February 25, 2022

Macro developments

Canada – CFIB small business sentiment increases

Small business sentiment increased significantly in February, as the CFIB Business Barometer rose to 62.5 in February from 54.3 in January. Ontario saw the largest increase in sentiment, but increases were seen in almost all provinces. Hiring plans turned positive but firms continue to report a shortage of labour limiting production. Price and wage increase expectations for the year ahead remain elevated.

U.S. – Markit PMI recovers; Conference Board consumer sentiment falls; Personal income unchanged while spending increases; Durable goods orders rises

The IHS Markit Flash US Composite Purchasing Managers’ Index jumped to 56.0 in February, from 51.1 in January. The increase was driven by the Services PMI, which rose to 56.7 from 51.2, while the Manufacturing PMI also saw an increase to 57.5 from 55.5. The retreat of the pandemic boosted underlying demand. Firms reported stronger output and new business on employees returning from sick leave and greater availability of raw materials. On the inflationary side, pressures continued to intensify as companies looked to boost inventories.

Consumer confidence further declined in February to 110.5, down slightly from 111.1 in January. Inflationary concerns rose and consumers viewed their future prospects as weaker. Large-purchase intentions over the next six months declined.

Personal incomes rose marginally (less than 0.1%) in January. An increase in compensation was offset by a decrease in government benefits. Spending on the other hand increased 2.1%. The increase was concentrated toward goods, led by motor vehicles.

Durable goods new orders rose a solid 1.6% in January. The transportation sector continues to see a solid recovery, with orders rising 3.4%. Other areas of strength were within machinery. Excluding transportation, new orders rose 0.7%.

International – Eurozone PMI rises; Japan PMI declines; Germany ifo sentiment rises

The IHS Markit Flash Eurozone PMI rose to 55.8 in February, from 52.3 in January. The Services PMI rose to 55.8 from 51.1, while the Manufacturing PMI was relatively unchanged at 58.4 from 58.7. Business activity rose in February as COVID containment measures eased, with services rebounding strongly on high-contact sectors. Manufacturing also saw continued expansion with reports of supply improvements and delivery times. Backlogs rose on the strong demand and the workloads saw firms increase staffing. Nonetheless, prices continued to rise, with the service-costs inflation accelerating to a record high. By country, France and Germany saw growth pick up significantly. The rest of the region lagged but did report an improvement overall.

The au Jiban Bank Flash Japan Composite PMI fell to 44.6 in February, from 49.9 in January. The Services PMI fell to 42.7 from 47.6, and the Manufacturing PMI fell to 52.9 from 55.4. The services sector fell further into contractionary territory amid a rise in COVID cases. Manufacturing output fell for the first time in five months, and new order growth eased as well. Supply chain disruptions continued to hinder activity as delivery times lengthened.

The Germany ifo Business Climate Index rose to 98.9 in February, from 96.0 in January. Businesses were generally more content with their current assessments and expectations, as the coronavirus crisis receding appears to outweigh the Ukraine-Russia conflict, which also remains a risk factor. Sentiment improved in all industries: manufacturing, services, trade, and construction. Firms noted solid demand, while material and supply bottlenecks hampered output.

Quick look ahead

Canada – GDP (March 1); Bank of Canada meeting (March 2)

GDP data for December will be released, providing a complete view of the final quarter and full year of 2021. StatsCan had previously estimated that GDP was unchanged for the month.

The spotlight is, however, on the Bank of Canada meeting this week, set to start its hiking cycle as inflation is at its highest in decades. Markets are split between whether the BoC has the appetite for a 50-basis-point hike instead of a 25-point move. Although inflation is elevated, but there is the overhanging risk of further COVID developments, as well as the recent ongoing geopolitical risks of the Ukraine-Russia conflict. Market pricing appears to favour the 50-basis-point double hike scenario.

U.S. – Federal Reserve Testimony and Fed Beige Book (March 2); Nonfarm payrolls (March 4)

The Chairman of the U.S. Federal Reserve is set to testify before the House Financial Services Committee. Markets will no doubt vet his speech and responses for hints on the path of tightening. The Fed blackout period will begin later this week, and the next time we hear from the Fed will be at the March 16 meeting.

A new iteration of the Fed Beige Book will be available. It should cover the receding case count and rebounding economic activity.

Nonfarm payrolls are expected to have continued the strong momentum in February, following a solid increase in January even in the face of rising COVID cases. Market consensus is for another 400K increase in jobs in February.

International – South Korean exports (February 28); China PMI and eurozone CPI (March 2); ECB minutes (March 3)

South Korean exports should have continued to hold strong, with February exports expected to rise 18.3% year over year. South Korean exports is often viewed as a barometer for global trade.

Chinese PMIs are expected to show muted growth, but the Manufacturing PMI could have risen into expansionary territory as countries globally contain COVID case counts.

Many European countries will release preliminary February CPI numbers. The headline reading for the region is set to accelerate to 5.3% year over year mainly on soaring energy prices.

Minutes from the European Central Bank meeting on Feb. 3 will be available. Although slightly outdated, markets will scour the minutes on what policymakers were thinking. President Christine Lagarde had previously said that a new round of economic forecast numbers would be available at the March meeting, which would be when the central bank could make a thorough assessment of the case for interest rate hikes.

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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.