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Weekly Market Pulse - Week ending March 18, 2022

Equities:

Equity markets continued to rise, remaining resilient in the face of several U.S. Federal Reserve officials giving hawkish signals. Fed Chairman Jerome Powell stressed that “price stability is essential if we are going to have another sustained period of strong labour market conditions” and was generally unconcerned about the possibility of a recession. Instead, Fed speakers touted the possibility of 50-basis-point hikes as a possibility in the central bank’s meetings to come as it looks to curb inflation.

Fixed income:

Yields rose sharply on the hawkish Fed statements. Canadian, U.S., and German 10-year yields are now substantially higher than pre-COVID levels as central banks globally have shifted their stance towards tightening policy and containing inflation.

Commodities:

Oil prices rose as the Russia-Ukraine war carried on. There was also a reported attack on Aramco’s facilities, further heightening supply concerns.

Performance (price return)

Performance table

  As of March 25, 2022

Macro developments

Canada

A quiet week in Canada with no major data releases.

U.S. – Powell says Fed could be more aggressive to curb inflation curb inflation if needed; PMIs rise; Durable goods orders decline

Fed Chairman Jerome Powell spoke at the National Association for Business Economics Conference. Powell stated that “the labour market is extremely tight, significantly tighter than the very strong job market just before the pandemic” and that wages were rising at the fastest pace in decades. Inflation, on the other hand, was already high even before Russia's invasion of Ukraine and has been much greater and more persistent than forecasted. Many forecasts had predicted that inflation would cool in the second half of the year as the economy started to return to normal after vaccines became widely available and supply chains would begin normalizing. However, the inflation forecast is uncertain given renewed supply disruptions from China and near-term upward pressure from the invasion of Ukraine on inflation from energy, food, and other commodities. Powell stressed that “price stability is essential if we are going to have another sustained period of strong labour market conditions.” Powell stated that the Fed could be aggressive and raise rates by more than 25 basis points at upcoming meetings, even to rates beyond common measures of a neutral stance and into a more restrictive stance if required.

The S&P Global Flash US Composite Purchasing Managers’ Index rose to 58.5 in March, from 55.9 in February. The Manufacturing PMI rose to 58.5 from 57.3, and the Services PMI rose to 58.9 from 56.5. The survey indicates an uptick in output growth by both manufacturers and service providers in March with the pace of expansion quickening to an eight-month high. Businesses reported a rise in new business and an increased pace of job creation, but backlogs grew sharply as firms were unable to keep pace with demand. Inflationary pressures continue to persist, with companies looking to pass on higher costs to customers. However, outlooks weakened amid the war in Ukraine and concerns on soaring input costs.

Durable goods new orders fell 2.2% in February. The drag was due to transportation equipment, which declined 5.6% on nondefense aircraft orders declining 30.4% and motor vehicle orders decreasing a slight 0.5%. Machinery orders also declined 2.6%. Excluding transportation, orders were down just 0.6%.

International – Eurozone PMI falls; Japan’s PMI rises

The S&P Global Flash Eurozone Composite PMI fell to 54.5 in March, from 55.5 in February. The Manufacturing PMI fell to 57.0 from 58.2, while the Services PMI declined to 54.8 from 55.5. European activity was expanding strongly as virus restrictions eased but was slightly stifled in response to Russia’s invasion of Ukraine. The survey indicates that economic growth continues to expand, but firms reported rising uncertainty, rising costs, and renewed supply chain disruptions leading to waning output and slowing order growth. Energy prices surged during the month, but there was also upward pressure on wages as firms continued to hire despite weakening business optimism to alleviate current staffing shortfalls.

The au Jibun Bank Flash Japan Composite PMI rose to 49.3 in March, from 45.8. Services PMI rose to 48.7 from 44.2, while the Manufacturing PMI rose to 53.2 from 52.7. Service providers continue to see a slight decline in activity even as new business inflows have risen on easing restrictions. Meanwhile manufacturing activity saw a moderate improvement as output returned to expansionary territory, offset by slowing new order growth. Manufacturers continued to signal lengthening delivery times and strengthening inflationary pressures.

Quick look ahead

Canada – Small business confidence and GDP (March 31); PMI (April 1)

We will have an updated reading on small business sentiment during the week. Sentiment had jumped in February following a broad reopening as restrictions eased. This month, sentiment could have weakened on higher input prices and higher uncertainty.

GDP data for January will be available. Market consensus is for a slight 0.2% gain, as much of the economy was still in lockdown due to the Omicron variant.

Lastly, March PMI readings will be available, and could follow the trend seen in the U.S., where strong demand drove the increase, more than offsetting the declines in confidence.

U.S. – Conference Board consumer confidence (March 29); Personal income and spending (March 31); Nonfarm payrolls (April 1)

The Conference Board Consumer Confidence Index is likely to be weighed down by concerns of even higher inflation, which risks being exacerbated by the Russia-Ukraine war. Economic uncertainty will be another important factor to watch.

Personal incomes and spending should have risen in February, with market consensus at 0.5% for both.

The monthly employment number will be the main event to watch for the week. Nonfarm payrolls are expected to have risen by 480K jobs in March, with the unemployment rate set to decline to 3.7%. The labour market is running hot, quickly recovering from the pandemic, with inflation at elevated levels. This could solidify market expectations of a double Fed rate hike, or 50 basis points, to come at the central bank’s next meeting.

 International – China’s PMI (March 31); Eurozone CPI (April 1)

The official Chinese PMI reading could have fallen into contractionary territory on the recent lockdowns in response to the renewed spread of the coronavirus.

Inflation in the eurozone is set to accelerate to a record of 6.9% year over year in March, according to market expectations. Energy prices are set to soar following the invasion of Ukraine and sanctions on Russia. Prices could have risen 1.9% in the month.

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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.