The second week of 2022 delivered negative results for many financial markets’ stock indices. Confidence was dented by geopolitical tensions, price pressures, earnings worries, a plethora of softer-than-expected economic data and concerns about rising interest rates.
The European Central Bank said that it would continue to reduce monetary support to counter inflationary pressures while multiple Federal Reserve officials were out talking about inflation and interest rate hikes.
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Canadian stock market returns were positive for the week. The S&P/TSX Composite Index was 1.30% higher, snapping a two week losing streak. On the data front, the Commerce Department said retail sales tumbled by 1.9% in December after edging up by a revised 0.2% in November. Michael Pearce, Senior U.S. Economist at Capital Economics, said the unexpected slump in retail sales appears to mainly reflect the ongoing impact of higher prices and supply shortages.
Wall Street notched a second straight negative week to start the year with the technology-rich Nasdaq Composite its third as inflation remained front and center.
The Consumer Price Index showed that prices surged 7.0% in December for the latest 12-month period—the highest level since 1982. It was the eighth straight month in which inflation exceeded 5%.
Concerns that the Fed may need to move more aggressively down the monetary policy tightening path to combat still surging inflation pressures added to the negative sentiment.
With quarterly earnings season just starting, investors were also given a dose of disappointing economic data. U.S. retail sales fell more than most economists had expected in December, dropping 1.9%, January consumer sentiment declined more-than-expected and a dip in industrial production was observed.
In Mexico, the IPC was up 1.02%. On the banking front, Citigroup announced the sale of its retail banking business in Mexico, its largest branch network in the world. Banorte and Santander Mexico are potential buyers. In other news, Mexico now has joined El Salvador as the second nation to drop all covid-related entry restrictions.
In Brazil, stocks as measured by the main Sao Paulo stock index Bovespa returned 4.2%, snapping four consecutive week with losses. On Friday, the index was boosted by gains in the heavyweight Petrobras (+2%) that tracked higher oil prices, while Magazine Luiza shares rose more than 4% after retail data in Brazil, which unexpectedly rose 0.6% over a month in November.
Japanese financial markets fell for the week. The extension of the government’s ban on nonresident foreigners entering Japan until the end of February, weigh on sentiment. In economic news, the Economy Watchers’ Survey, a measure of the public assessment of the Japanese economy, increased marginally to 56.4 in December from 56.3 in November, survey data from the Cabinet Office showed.
The Bank of Japan’s December producer price index rose 8.5% y-o-y following the previous month’s 9.2% and missing forecasts for a gain of 8.8%. The Asian country posted a current account surplus of 897.3 billion yen in November, the Ministry of Finance said, down 48.2% on year.
Chinese stocks were lower this week weighed by headlines about refinancing difficulties in the country’s troubled real estate sector. A severe and prolonged downturn in China’s property sector would have significant economy-wide reverberations, the World Bank warned in its Global Economic Prospects report.
In economic news, December consumer and producer price inflation indicators came in lower than expected. CPI was 1.5% higher y-o-y (vs. 2.3% previously) while PPI was up 10.3% y-o-y last month (vs. 12.9% previously). Meanwhile, China’s trade surplus rose to $94.46 billion in December, remaining above the expected level of $74.5 billion. For the whole 2021, the trade surplus rose to a record $676.43 billion, the highest since 1950, when the country began recording data, the General Administration of Customs revealed on Friday.
Australian equities suffered their worst week since November. The S&P/ASX 200 Index fell 59.4 points, or 0.8%, to 7393.9 this week, with Friday’s loss of 1.1%, or 80.50 points, weighing heavily.
The benchmark is currently 3.1% below its 52-week high of 7,632.80. The value of retail sales in Australia jumped 7.3% on month in November, coming in at A$33.411 billion. November had a merchandise trade surplus of A$9.423 billion, the Australian Bureau of Statistics said.
European financial markets’ indices ended the 5 day trading period slightly in the red. Germany’s DAX Index slipped 0.40%, France’s CAC 40 Index dropped 1.06% while Italy’s FTSE MIB Index fell 0.27%. The German economy logged only a moderate recovery in 2021, Destatis said. Gross domestic product grew 2.7% last year, in contrast to the 4.6% decline in 2020, matching economists’ expectations.
Meanwhile, eurozone’s trade balance logged a deficit in November due to higher imports, data from Eurostat showed. The trade deficit came in at a seasonally adjusted EUR 1.3 billion compared to a surplus of EUR 1.8 billion in October. On the bright side, industrial output surged 2.3% sequentially in November—well above a consensus forecast for 0.5%.
In Poland, the WIG20 jumped 3.08%. On the macro front, Polish annual inflation rate stood at 8.6% in December, the country’s Central Statistical Office (GUS) said in a final estimate on Friday.
In Hungary, the BUX gained 3.42%. Consumer prices were 7.4% higher on average last month than a year earlier, according to data by the Central Statistical Office (KSH).
Of note, 39% of companies in Central and Eastern Europe fear that with the expected withdrawal of government bailouts, there will be more bankruptcies this year, according to an analysis by credit insurance company Atradius.
REST OF EUROPE
In Russia, the Russian Trading System (RTS) Index returned -3.84% this week following the failure of high-level diplomatic talks between Moscow, Washington and NATO. The Kremlin said the talks had been “unsuccessful” in bridging fundamental differences over the Ukraine crisis and Moscow’s demands that NATO pull back from central and eastern Europe. Russia’s lead negotiator said he saw “no reason” to renew talks anytime soon.
In the UK, London’s premier FTSE100 index was 0.77% higher. In economic news, the UK economy expanded at a faster pace in November underpinned by services activity.Gross domestic product increased by 0.9% on month, faster than the revised 0.2% expansion in October and forecast of 0.4%, the Office for National Statistics showed on Friday.
(Note: Trading between 09-13/02/2022)
In Israel, trading in the Tel Aviv Stock Exchange (TASE) in the second week of January was marked by increases in the leading share indices. The benchmark TA-35 index increased this week by 3.4%, bringing year-to-date cumulative gains to 4.7%.
Saudi Arabia’s financial markets gained for the week with the TASI surging by 5.67%. The oil-rich kingdom’s public Investment Fund (PIF) plans to invest US$ 10 billion in stocks in 2022, Bloomberg reported citing people familiar with the matter. The Fund is seeking to acquire global stocks based on a thematic strategy and is keen on themes of e-commerce such as internet retail and renewable investments.
Stocks in South Africa, as measured by Johannesburg Stock Exchange’s Top 40 index returned 1.78%. South African assets rallied on Wednesday tracking a strong performance on Wall Street. In currencies, a day earlier the SA rand was trading a percent stronger at R15.50/$ in early trading on Tuesday, its best level since November last year.
In Nigeria, the All Share Index was up 1.37% this week while its Year-to-Date (YTD) return is 4.07%. Analysts remain upbeat on the prospect of the Nigerian stock market in 2022, saying Nigerian stocks should remain resilient in this year.
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Kyriaki Balkoudi is a markets editor for World Markets Daily. She has a bachelor’s degree in Balkans Studies from Aristotle University of Thessaloniki, Greece and a master’s degree in International Politics from City University London, UK.
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