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Weekly Market Pulse - Week ending February 4, 2022

Market Developments

Equities:

Markets rose for the week, recovering some of their recent losses. Earnings season continues to come in strong, with over half the S&P 500 Index having now reported. Economic growth also proved resilient, with U.S. job numbers surpassing market expectations even in the face of Omicron. Chinese markets were closed for the Lunar New Year holidays.

Fixed income:

Yields rose sharply as Bank of England and European Central Bank came in more hawkish than markets had expected. The Bank of England hiked interest rates 25 basis points, but came close to doubling that. The ECB admitted that medium-term inflation is getting closer to target, implying that rate hikes may soon be on the table.

Commodities:

Oil prices surged to a new seven-year high even as the OPEC+ coalition pushed onwards with its output increase on strong demand amid political tensions between Russia and Ukraine and the cold spell in Texas. Copper prices recovered as statements from U.S. Federal Reserve officials pushed back against the notion of a half-point hike. 

Performance (price return)

Performance table

  As of February 4, 2022

Macro developments

Canada – GDP rises; Employment falls on lockdowns

Real GDP rose 0.6% in November. Increases were widespread, with 17 of 20 sectors posting gains, and real GDP is now 0.2% above pre-COVID February 2020 levels. StatsCan estimates that GDP was essentially unchanged for December, which would imply that GDP expanded an estimated 4.9% for the year.

Canadian employment declined by 200K jobs in January. Declines were driven by Ontario and Quebec as public health restrictions came into effect. Losses were concentrated in services sectors, with accommodation and food services the hardest hit. Meanwhile employment in goods-producing sectors rose, led by construction. The unemployment rate rose by 0.5% to 6.5%.

U.S. – Nonfarm payrolls increase

Total nonfarm payrolls rose by 467K jobs in January, following the 510K increase in December. The gain was concentrated within the services industries, in which employment increased 440K. By sector, leisure and hospitality employment rose 151K, professional services increased 86K, and retail trade gained 61K. Unemployment rose 0.1% to 4.0% on a higher participation rate.

International – Bank of England hikes rates again; ECB sees medium-term inflation closer to target; Chinese PMI declines; Eurozone GDP and CPI increase

The Bank of England raised interest rates by 25 basis points to 0.5%, marking its second hike towards normalization. Committee members had voted 5–4 in favour of the move. However, markets reflected some surprise at the fact that the four dissenters in this case had voted for a 50-bp hike instead. At the same time, the central bank began to reduce its bond holdings, as the BoE had previously indicated it would start doing so once rates rose to 0.5%. The central bank noted that inflation was expected to peak at around 7.25% in April from the latest 5.4% reading for December, before declining to “a little above the 2% target in two years’ time.” Markets interpreted the vote as a sign that the central bank was behind the curve on tightening, which was denied by BoE Governor Andrew Bailey. Markets are now pricing for the possibility of a further two hikes to come at the next meeting in March, and as many as five more hikes for the year.

The European Central Bank on the other hand kept rates steady and confirmed that asset purchases were continuing at a lower pace in the quarter. ECB President Christine Lagarde admitted that inflation risks were slightly elevated for the year and are getting closer to the ECB’s target for the medium term. Markets will have to wait for the next meeting, when the ECB will release new forecast numbers that could change how the central bank plans to proceed this year.

China’s Composite PMI fell to 51.0 in January, from 52.2 in December. The Manufacturing PMI was little changed at 50.1 compared to 50.3, while the non-manufacturing PMI fell to 51.1 from 52.7. Indicators of demand were weak, as new orders and backlogs declined. Employment fell as a result. On the cost side, both input and output prices rose.

Euro area GDP is estimated to have risen 0.3% seasonally adjusted in the fourth quarter. The region was mixed and varied by country, led by Spain (+2.0%), Portugal (+1.6%), and Sweden (+1.4%). France also posted a solid increase of 0.7%. On the other hand, output declined in Germany (-0.7%) and Austria (-2.2%). Overall, GDP for the region is estimated to have expanded 5.2% for the year.

Euro-area CPI rose 0.3% in January, and the year-over-year reading accelerated to 5.1%, up from 5.0% in December. The increase was led by energy prices rising a strong 6.0% in the month and food prices increasing 1.1%. Non-energy good prices declined 2.0%, while service prices were unchanged. 

Quick look ahead

Canada

A quiet week with no notable data releases for Canada.

U.S. – CPI (February 10); University of Michigan consumer sentiment (February 11)

The U.S. consumer price index is forecasted to have gained a further 0.5% in January. Gasoline prices will continue to apply upward pressure. On a year-over-year basis, CPI should accelerate to 7.3% and is expected to be nearing a peak over the next few months.

Consumer sentiment has been especially weak, with the University of Michigan reading dropping closer to levels seen during the onset of the pandemic. Consumers have shown decreased intentions to spend amid higher prices and income uncertainty.

International – German industrial production (February 7); UK GDP (February 11)

German industrial production has been hampered due to supply issues but could have risen 0.5% in December. The automotive industry is expected to show some improvement.

U.K. GDP numbers for December will be available, and should show a mild contraction as restrictions were placed in response to COVID. Nonetheless, real GDP in the fourth quarter is forecast to have expanded 1.1%.

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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.