Trading in world markets was extremely volatile this week. Rising concerns about interest rate increases and tensions between Russia and the West continued to drag markets down. Investors reacted to Wednesday’s highly-anticipated monetary policy decision out of the U.S., which signaled that a potential rate hike could come in March after the rate hike campaign begins it will begin to reduce its balance sheet sometime this year.
Adding to woes, the IMF now projects global GDP growth of 4.4%, down a half-percentage point from its earlier forecast. And renowned value investor Jeremy Grantham, 83, in an interview with Bloomberg, predicted a drop of almost 50% in the S&P 500 saying no amount of Federal Reserve intervention could prevent it. He also warned that the “Goldilocks” period of the past 25 years is ending, and the world needs to prepare for a future of inflation, slower growth and labour shortages…
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Canadian markets gained for the week. The benchmark S&P/TSX Composite Index closed up 0.58%. Global benchmarks have tumbled in the first month of the year, but the TSX has staved off major losses. On the monetary policy front, the Bank of Canada held its overnight rate at a record low 0.25% on Wednesday, but warned multiple increases would be coming soon, putting Canadians on notice that borrowing costs are going up. For almost two years, the bank kept the economy on life support.
After a rollercoaster ride seen throughout the week, the U.S. market did hold on to a solid rally on Friday afternoon – with the major averages managing to close higher for the extremely volatile week. For the week, the Dow Jones climbed by 1.3%, the S&P 500 moved up 0.8% and the Nasdaq inched up less than 0.1%
The FOMC concluded on Wednesday by confirming the move towards a more restrictive approach. During his post-FOMC meeting comments Jerome Powell vowed to get inflation under control by any means necessary, but didn’t provide a roadmap. Potentially more rate hikes than expected, more quickly than expected. The market now prices five 25bps rate hikes by the end of this year, mirroring Deutsche Bank’s call; BNP Paribas are calling for six, while ING are forecasting as many as seven.
In Brazil, equities as measured by the the Bovespa Index, returned about 2.7%. The central bank is preparing for a third consecutive 150 basis point rate rise next Wednesday. Inflation has roughly doubled in the country from a little over 5% when the c-bank began raising rates to around 10% now.
In Chile, the IPSA Index plunged 2.3%. Chile’s central bank lifted its monetary policy interest rate by 150 bps to 5.5% on Wednesday, above market estimates of 5.25%, enacting its largest interest rate hike in 20 years. “The evolution of inflation continues to face significant risks and their possible materialization becomes especially relevant in a context where both the annual change in the CPI and its outlook are already high”, the central bank said. Bank profits in Chile exceed US$4.5 billion in 2021 and show growth of almost 200%, the Financial Market Commission (CMF) reported on Friday.
Japanese stocks slumped this week. The Nikkei rebounded on Friday from a 14-week closing low but still was down 2.92% for the week, registering its biggest weekly drop in two months. Sentiment was dampened by worries about an accelerated pace of U.S. monetary policy tightening. Japanese authorities’ decision to extend quasi-states of emergency to more prefectures also hurt.
On the macro front, the Ministry of Internal Affairs and Communications announced consumer prices in the Tokyo region were up 0.5% on year in January. That was shy of expectations for an increase of 0.6% and was down from 0.8% in December. The IMF revised upward its outlook for Japan’s economic growth in 2023 by 0.4 percentage points to 1.8% year over year. On the central banking front, Bank of Japan (BoJ) Governor Haruhiko Kuroda reiterated the central bank’s commitment to ultra-loose monetary policy.
Chinese stock markets generated a negative return for the week ahead of the week-long Chinese New Year break. Selling intensified as investors pared positions ahead of the holiday. Trading volumes were about 10% below the 30-day average, according to Bloomberg-compiled data. A spate of profit warnings, mostly in the heavily indebted property sector, further dampened trading sentiment as most China-listed companies prepare to start reporting annual results next month.
In economic news, December’s industrial profit growth was weaker than expected, moderating to 4.2% y-o-y from 9% in November. China securities regulator met this week with foreign banks to soothe economic concerns, Reuters reported citing people familiar with the matter.
The ASX 200 suffered four consecutive days of market losses and despite posting robust gains on Friday it was not enough to recover. The benchmark index plunged 2.62% with every sector ending the week lower. Tech stocks led the losses. Another factor driving trading this week was mega-miner BHP’s move to list all of its shares on the ASX, ending a dual-listing in London. The miner’s weighting on the Australian benchmark will rise to about 10%, from 6.7%, causing index funds to re-adjust their portfolios.
Shares in Europe extended their declines for a fourth consecutive week as European investors took take greater note of the geopolitical maneuverings. Germany’s DAX Index slid 1.83%, Italy’s FTSE MIB also fell 1.83% while France’s CAC 40 dropped 1.45%. Germany’s gross domestic product (GDP) contracted 0.7% in the last three months of 2021 while France’s economy grew 0.7% over the same period. Deutsche Bank surprised markets by reporting its biggest profits in 10 years with its investment banking unit driving the figures. In other economic releases, preliminary data for IHS Markit’s eurozone Purchasing Managers’ Index (PMI) came in at 52.4—an 11-month low.Manufacturing PMI, on the other hand, hit a five-month high.
In Poland, the WIG20 index shrunk by 3.96%. The National Bank of Poland holds its next rate-setting meeting on Feb 8. Earlier this month, the central bank raised its main interest rate by 50 basis points to 2.25%, the fourth hike in as many months as it grapples with a surge in inflation.
Hungary’s stock market returns were positive for the week. The BUX climbed 1.28%. The central bank raised its benchmark base rate by 50bps to 2.9% on Tuesday, the highest since December of 2013 and the steepest increase since November of 2011, surpassing expectations of a 30bps hike to 2.7% as inflation persists. It was the eighth consecutive rate hike. On Thursday it also hiked its one-week deposit rate, used to tackle market volatility.
In currencies, Reuters polls expect CEE currencies to gain in 2022, helped by interest rate hikes.
REST OF EUROPE
In Russia, equities as measured by the RTS index ended the trading week 0.37% higher staging a remarkable recovery after weeks of heavy losses as the standoff between Moscow and the West over Ukraine continues. Since the start of the Russian military buildup on the borders of Ukraine in October, the market has lost more than a quarter of its value.
In the UK, London’s premier FTSE 100 index slipped 0.37%. In the financial year to December, the country’s budget deficit was GBP 146.8 billion, which was the second-highest financial year-to-December borrowing since monthly records began in 1993. In other news, UK retail sales declined below seasonal norms in January due to the tightened Covid restrictions, the Distributive Trades Survey from the Confederation of British Industry showed on Thursday.
In Switzerland, the SMI ended the trading week on a weak note, plunging 2.03%. On the bright side, the economic barometer rose to a three-month high of 107.8 from 107.2 in December, which was revised from 107.0, according to results of the monthly survey by the KOF Swiss Economic Institute.
(Note: Trading between 23-27/01/2022)
In Israel, trading in the Tel Aviv Stock Exchange (TASE) in the fourth week of January was marked by decreases in prices in the leading share indices, similar to the trend in leading stock exchanges worldwide. The TA35 index decreased this week by 5.1%, bringing year-to-date cumulative losses to 3.1%. In economic news, data released by the Treasury indicate that the rate of public debt and government debt to GDP reached about 70.3% and about 68.5% respectively in 2021. The Bank of Israel announced that the Composite State of the Economy Index for the month of December 2021 decreased by 0.05% following a rise of about 0.1% in each of the three previous months.
In Saudi Arabia, the stocks as measured by the TASI returned -0.91%. In commodities, the oil-rich kingdom may raise prices of all grades of crude it sells to Asia in March on firm demand and stronger margins for gasoil and jet fuel according to seven refining sources surveyed by Reuters on Jan 25-26. March Arab Light crude OSP may rise by 60 cents/bbl.
In South Africa, markets fell for the week. The JSE Top 40 index lost 1.71%. The South African Reserve Bank’s Monetary Policy Committee (MPC) raised the repo rate to 4%, the second hike in four months, and will continue to do so as low growth, oil prices, electricity and food costs continue to stoke inflation. Credit bureau companies are worried that the rising interest rate cycle could cause more consumers to default on their debt.
In Nigeria, the NSE All Share Index bucked the global trend gaining 0.54%. The positives recorded in the week which saw influx of full year 2021 financial scorecards of many corporates helped push the equities market’s positive return year-to-date to +8.17%. In the trading week ended Friday, the value of listed stocks on the Nigerian Bourse increased from week-open low of N24.760trillion to N24.898trillion.
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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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