It was a broadly positive week for world equities despite shock US inflation numbers and scant progress on finding a solution to the crisis surrounding Ukraine. Healthy earnings results and further reopening of economies boosted sentiment. According to analysts, markets have historically shrugged off geopolitical events involving Russia as Russia makes up a very small portion of the main global and emerging market indices, while Ukraine has no exposure in such indices.
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Canadian stock markets generated a positive return for the week with the benchmark S&P/TSX Composite Index up 1.30%, its third straight weekly rise. Bank of Canada Governor Tiff Macklem on Wednesday said that the country does not need more stimulus, but rather more investment from both government and businesses to build up supply capacity to meet strong consumer demand. Demonstrators protesting coronavirus restrictions and the Trudeau government have descended on Canada’s capital. Protests have also sprung up in Australia, New Zealand and France, while truckers in the US have said they are planning similar demonstrations.
The major U.S. stock indices climbed on Tuesday and Wednesday, only to fall the next two days amid renewed concerns about inflation, the pace of monetary tightening, and rising tensions between the West and Russia. The consumer price index (CPI) rose 7.5% in January from a year ago, exceeding the 7.3% estimate and marking the largest gain since February 1982. High prices are taking a toll on consumer sentiment which fell to its lowest level in more than a decade in early February. The University of Michigan’s preliminary consumer sentiment index dropped to 61.7 in the first half of this month, the lowest since October 2011, from a final reading of 67.2 in January.
The inflation data also added pressure on the Federal Reserve to move more quickly, and perhaps more forcefully than planned, to hike interest rates. In an interview with Bloomberg News on Thursday, St. Louis Fed President James Bullard indicated he supports raising interest rates by a full percentage point by the start of July, including a possible 50-basis point hike.
In Brazil, stocks as measured by the BOVESPA returned 1%.The Economic Activity Index (IBC-Br) posted a 0.33% increase in December, according to the Brazilian Central Bank. January IPCA came in at 1.4% (versus 0.6% expected), a rise of 10.4% y-o-y, or higher than the 9.1% expected. Central Bank President Roberto Campos Neto said that the peak of Brazilian inflation is expected to occur in April or May this year. Services in December increased by 1.4% (vs. 0.6% expected).
In Chile, the S&P IPSA Index, surged by 5.1%. The annual inflation rate in Chile surged to 7.7% in January, the highest since November 2008, from 7.2% in December. investors are concerned that the central bank will need to raise its key policy rate—currently at 5.50%—higher than previously expected.
In a holiday-shortened week, the Nikkei 225 climbed 0.93% supported by upbeat earnings. Japanese markets were closed for National Foundation Day on Friday. The Bank of Japan announced that it will buy its benchmark 10-year bonds for the first time since July 2018 in an attempt to keep rates from breaching its target range. BoJ Governor Haruhiko Kuroda has continued to assert that, with inflation in Japan remaining well below the central bank’s 2% target, it will continue on its current trajectory, which is among the most dovish in the world.
Chinese equities rose during the first trading week after Chinese New Year. Supportive official comments and a perception that the country’s regulatory crackdown cycle had peaked helped.
January new yuan loans and aggregate financing—a measure of total credit issued—both rose more than forecast to record levels in January, central bank data showed. Meanwhile, China’s foreign currency reserves fell in January by roughly USD 28 billion to USD 3.22 trillion.
The Australian market posted its second consecutive week of gains with the ASX advancing 1.36%. The finance sector was the best performer of the week, 4% higher. Local tech stocks also posted gains of more than 2%. The other big performer for the week was Australia’s iron ore miners. Reserve Bank of Australia Governor Philip Lowe on Friday pushed back on calls for a local rate hike, saying moving on interest rates too early could put the country’s employment goals at risk.
European stocks rallied, despite volatile trading and shrugged off geopolitical events. Strong corporate earnings and further reopening of economies boosted sentiment. Oil majors like BP and Total posted record figures due to higher crude prices. Shipping giant Maersk reported its best ever profits thanks to soaring freight prices.
European Central Bank President Christine Lagarde pledged on Monday for a gradual adjustment to monetary policy. The European Commission in its Winter Interim Forecast lowered its 2022 outlook for economic growth in the eurozone to 4.0% from its previous forecast, issued last fall, for a 4.3% expansion. Risks to the growth and inflation outlook are aggravated by geopolitical tensions in Eastern Europe, the EU’s executive arm said. Inflation is expected to accelerate to 3.7% this year.
Polish markets positive for the week. The WIG20 rose 1.31%. The National Bank of Poland raised its benchmark reference rate by 50bps to 2.75% on Tuesday, as largely expected. It was the fifth consecutive increase of the main rate. NBP Governor Adam Glapinski stated interest rates would rise more than market expectations of 3% – 4% this year.
In Hungary, the BUX added 0.65%. Hungarian inflation data, the first glimpse into price developments in central Europe in 2022 soared 7.9% in January, driving rate hike expectations higher. Economists had expected a 7.4% rise. Industrial production grew a working-day adjusted 3.6% year-on-year in December, following a 2.2% rise in November, data from the Hungarian Central Statistical Office showed.
REST OF EUROPE
In Russia, the RTS Index jumped 2.37%. The Central Bank of Russia raised its benchmark policy rate by 100bps to 9.5%, the highest since March 2017 as inflation continued to stay well above the target.
The decision came in line with expectations. The Russian economy is projected to grow 2.0-3.0% this year. In other news, Russian Foreign Minister Sergei Lavrov and British Foreign Secretary Liz Truss held talks in Moscow on Thursday. The talks failed.
In the UK, London’s premier index generated a positive return for the week. The FTSE 100 gained 1.92%. The UK economy has registered the highest expansion since 1946, growing 7.5% in 2021, data from the Office for National Statistics showed Friday.
In Switzerland, the SMI index gained 0.76%. Consumer prices rose 1.6% in January, following a 1.5% increase each in December and November.
Trading in the Tel Aviv Stock Exchange (TASE) in the second week of February was marked by increases in most of the leading share indices. The TA-35 index advanced this week 2.9%, bringing year-to-date cumulative gains to 0.4%. In currencies, the Bank of Israel released figures indicating that foreign currency balances reached about US$ 209 billion, an amount about US$ 4 billion less than the foreign currency balances at the end of 2021.
Stocks in Saudi Arabia as measured by the benchmark TASI index returned 1.04%. The oil-rich kingdom’s economy accelerated 6.8% in the last quarter of 2021, maintaining the fastest pace of annual growth in almost a decade. High oil prices boost the country’s income. Saudi Arabia’s Crown Prince Mohammed bin Salman transferred 4% of Saudi Aramco shares worth $80 billion to the Public Investment Fund (PIF), the kingdom’s sovereign wealth fund, the government said on Sunday (Feb.13).
In South Africa, the JSE Top40, was higher by 1.46%. In fixed income markets, foreign investors have been returning to South Africa’s bond market. Non-residents have been net buyers of the nation’s debt for five days in a row, the most sustained spell of purchases since May, according to Bloomberg. Together with a healthy trade surplus fueled by rising commodity prices, those inflows could continue to support the South African rand in coming months.
Nigerian markets fell for the week. The Nigerian Exchange Limited (NGX) All Share Index was off 0.16%. At the close of market on Friday (Feb.11) , the stock exchange market value stood at N25.44 trillion. The Lagos State Governor, Babajide Sanwo-Olu, has indicated the state’s interest in collaborating with NGX as it will explore capital raising through the exchange to fund infrastructure projects through equities, Green, Sukuk and Blue Bonds.
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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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