Trading in the third week of February was conducted against the backdrop of continued caution worldwide with news on military tensions on the Russia-Ukraine border still dominating the market mood. The geopolitical front appeared to agitate worries about the potential impact on the ongoing global supply-chain challenges and the continued surge in inflation. Uncertainty about the outlook for monetary policy also continued to weigh on the markets ahead of an anticipated interest rate hike by the Federal Reserve next month. A perfect storm may be on the horizon if calmer heads don’t prevail.
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Canadian markets generated a negative return for the week as the mood remained quite cautious. The benchmark S&P/TSX Composite Index shed 2.51% in the week amid lingering concerns about geopolitical tensions, and weak commodity prices. On Wednesday, shares of Shopify, which has the third-largest market capitalization on the TSX, tumbled 17.1%, their biggest drop ever, after the e-commerce software giant’s statement that full-year revenue growth will be lower than the 57% increase in 2021. In other news, retail sales in Canada likely rose 2.4% month-over-month in January of 2022, preliminary estimates showed
Stocks in the US posted losses for a second-straight week, as traders continued to get jitters over Ukraine. The Dow Jones and the Nasdaq lost 1.9% and 1.8%, respectively. The S&P 500 dropped 1.6% falling for a fifth week out of the seven we have seen this year. Contradictory signs from the Federal Reserve also seemed to foster volatility. Federal Reserve Bank of St. Louis President James Bullard repeated his view that the Fed should raise interest rates by 100 basis points by July 1, and start balance-sheet run-off in the second quarter, in response to the fastest inflation in 40 years. Federal Reserve Bank of Cleveland President Loretta Mestersaid she supports raising rates next month. On the bright side, retail sales surged in January by the most in 10 months.
Mexican assets declined. The S&P/BMV IPC retreated 1.78%. The economy is expected to have contracted in January versus December, but likely grew in the month from a year earlier, a preliminary estimate from national statistics agency INEGI showed.
“Brazil and Mexico staged a modest recovery late last year, but both remain stuck in mild recessions. Moreover, Mexico is the only country (among the largest six economies in the region) that has so far failed to reach pre-pandemic growth levels in the last year,” Oxford Economics senior economist Joan Domene said in a note to clients.
In Brazil, stocks as measured by the BOVESPA index returned -1%.
Investors’ aversion to risk assets interrupted a cycle of 5 weekly highs. At 112,879 points, the benchmark index ended Friday’s session with a financial turnover of R$24.9 (US$4.8) billion. In economic news, the value of Brazilian exports grew 31.4% in January, led by commodities, whose volume rose 17.4%, the Brazilian Institute of Economics of Getulio Vargas Foundation (Ibre/FGV) revealed.
Japanese stocks were down this week. The Nikkei 225 Index lost 2.07%. Japan’s stock market plans revamp to draw more investors, the Wall Street Journal reported on Wednesday (Feb. 16). On the macro front, the Japanese economy grew by an annualized 5.4% quarter on quarter over the final three months of 2021, Separate data showed that Japan’s core inflation rate, which excludes fresh food but includes fuel costs, slowed to 0.2% in January from a 0.5% rise in the preceding month, falling short of expectations and remaining well below the central bank’s 2% target. Meanwhile, the country posted a merchandise trade deficit of 2,191.1 billion yen in January. In currencies, the Japanese yen hit a 2-week high of 114.79 against the U.S. dollar, on safe-haven demand against the backdrop of the Ukraine crisis.
Chinese equities bucked the global trend posting gains as supportive comments from government officials and lower-than-expected inflation data increased investors’ risk appetite. Producer price index (PPI) moderated for the third month running, up 9.1% YoY in January, down from 10.3% in December. CPI decelerated to 0.9% vs 1.5% previously giving space for the central bank to ease its policy to support economic recovery. The People’s Bank of China (PBOC) left its medium-term lending facility rate unchanged after reducing it last month with the head of PBOC saying that the central bank would maintain looser monetary policy this year. Meanwhile, China’s top finance minister vowed to further cut corporate tax rates, strengthen targeted fiscal spending, and tighten fiscal discipline.
Australia’s ASX 200 added 0.06% over the week, recording its third straight week of gains despite jitters over Ukraine and dismal report from QBE. The insurance giant slumped 8.7% on Friday after its full-year profit fell short of market expectations. Health stocks led the gains for the week. In economic news, the unemployment rate in Australia stood at 4.2% in January, in line with expectations and unchanged from the previous month.
European markets were lower as investors continued to monitor geopolitical concerns. Germany’s DAX was off 2.48%, France’s CAC 40 Index gave up 1.17% and Italy’s FTSE MIB Index pulled back 1.70%. European Central Bank (ECB) policymakers talked down interest rate expectations but Chief Economist Philip Lane shifted his position on inflation, suggesting there may be a growing consensus for stimulus to be withdrawn faster than planned.
On the data front, Eurozone consumer confidence deteriorated further in February (-8.8 from -8.5 in January), defying expectations for a modest improvement, preliminary data from the European Commission showed. Adding to woes, the eurozone’s trade deficit in goods widened by a seasonally adjusted EUR 9.7 billion in December—the most since August 2008—as energy costs soar.
In Poland, the WIG20 plunged 2.72%. On the bright side, Fitch has upheld Poland’s long-term foreign currency rating at ‘A-‘ with a stable outlook, the agency said in a statement on Friday evening. “Strong consumer sentiment, drawdown of savings, and robust wage growth will fuel household spending (average growth of 4.2 percent year on year) while faster absorption of EU funds will propel investment growth to 5.2 percent year on year on average in 2022-23,” the agency wrote in the report.
In Hungary, the BUX index sank 3.65%. The National Bank of Hungary holds a monetary policy meeting next week, with a Reuters poll of analysts expecting another 50 basis point (bp) rate hike to 3.4% to curb inflation.
REST OF EUROPE
Russia’s stock market returns were negative for the week. The dollar-denominated RTS index of leading Russian stocks shrunk by 5.36% amid another turbulent week of high tension between Moscow and the West. The back-and-forth of diplomacy and reports civilians were being evacuated from the Donbas region in eastern Ukraine pushed Russian markets deep into the red. Kremlin spokesman Dmitry Peskov speaking to Russian state-owned media on Sunday (Feb. 20) stated that daily speculation by officials and media from the West about the date of the supposed Russian “invasion” against Ukraine “directly leads to an increase in tension” that could bring “irreparable consequences” to the region.
In the UK, the London’s premier FTSE 100 index tumbled 1.92%. Consumer prices edged higher to 5.5% from year-ago levels in January—the highest level since March 1992— and above market forecasts of 5.4%, prompting markets to expect the Bank of England to hike rates faster than expected. Meanwhile, the UK unemployment rate decreased to 4.1% in the fourth quarter of 2021, remaining at the lowest since the second quarter of 2020 and in line with market expectations.
In Switzerland, the SMI ended the week 1.81% lower. In economic releases, industrial output increased by 7.3% year-on-year in the fourth quarter of 2021, slowing from an upwardly revised 8.5% rise in the previous three-month period, data from the Federal Statistical Office showed.
(Note: Trading between 13-17/02/2022)
Trading in the Tel Aviv Stock Exchange (TASE) was marked by decreases in prices in the leading share indices, similar to the trend in leading stock exchanges worldwide. The index decreased this week by 0.3%, bringing year-to-date cumulative gains to 0.1%. On the macro front, GDP at constant prices jumped in the fourth quarter of 2021 by 16.6% in annual terms, compared with the previous quarter – a record rate, first estimate data released by the the Central Bureau of Statistics indicated. Israel’s annual inflation rate quickened for the third straight month to 3.1% in January while the rate of unemployment decreased to about 3.7%.
Saudi Arabia’s TASI index climbed 1.69%. Middle East’s biggest stock market will introduce options trading on single stocks over the next few weeks to further boost its liquidity, Bloomberg reported, citing people familiar with the matter. Meanwhile, Saudi Arabia’s Crown Prince Mohammed bin Salman transferred 4% of oil giant 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, stocks as measured by the Johannesburg’s JSE Top 40 returned -0.04%.Consumer price inflation fell to 5.7% in January, down from 5.9% in December, thank to lower fuel prices, according to Statistics SA. In Nigeria, the local bourse recorded its second weekly loss in the year, as the All-Share Index dropped 0.13% to close at 47,202.3 points, following the 0.16% fall recorded in the previous week. The market capitalization closed at N25.436 trillion. Nigeria, Africa’s biggest crude producer,
In other news, EU and African leaders meet for a two-day summit on Thursday, seeking to reboot ties with pledges of major investment in the face of competition from China and Russia. The European Union has pledged 150 billion euros ($170 billion) for investment in Africa over the next seven years but details on funding remain vague.
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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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