Hey Folks, lots of moving parts to our financial markets. Get my take here in this week’s Round-Up;
WEEKLY SOUND BITES:
Equity markets closed mostly higher after a holiday-shortened week of historic volatility sparked by Russia’s invasion of Ukraine. On Thursday, NASDAQ swung by 6.8%, the largest intraday range since the start of the COVID pandemic in March 2020. The conflict also sent shock waves through fixed income markets as investors rushed into perceived safe havens, driving longer-term U.S. Treasury yields lower and the U.S. dollar higher, particularly against the Russian ruble and other emerging markets currencies.
The week’s earnings reports and economic data generally seemed to take a back seat to the geopolitical tensions, however. The Feds preferred inflation gauge, the core PCE (personal consumption expenditures) price index, rose 5.2% over the year ended in January, up from the prior month’s pace and in line with estimates. Pending home sales tumbled to a nine-month low in January amid historically low inventory and eroding affordability in the housing market as mortgage rates rise while the PMI for February revealed that the U.S. manufacturing and service sectors were growing at a faster pace following an omicron-related lull in January.
Fed policymakers will have to weigh the trade-off between financial conditions and higher commodity prices—both Ukraine and Russia are leading grain exporters, and Russia is a major supplier of aluminum, titanium, nickel, and especially palladium. Germany’s suspension of the construction of the Nord Stream 2 pipeline supplying natural gas from Russia to Western Europe, along with sanctions on Russian oil exports, is likely to result in a classic supply-side energy shock to inflation. As a result, the Fed may not have to raise rates as much as recently expected. On balance, though, the Feds will not be deterred from starting its rate hiking program in March to fulfill its mandate to keep inflation low and steady and the Fed Fund Futures has put a higher probability on a 25 bps rate hike from the earlier 50 bps hike forecasts.
Shares in Europe fell as Russia’s invasion of Ukraine fueled fears of higher inflation and an economic slowdown. Some analysts feel the impact to the natural gas market could drive up energy costs to all Europeans, especially if the war in Ukraine is prolonged. If this is the case then that increased the odds of possibly putting Euro Economy into a recession. Eurozone composite PMI rose to a five-month high of 55.8, an improvement from the 53.3 reading registered in January.
Japan adopted a first set of Russian sanctions on Wednesday, addressing the issue in cooperation with the international community. Japan had enough oil and gas reserves to cushion any short-term blow to energy supplies. Japanese PMIs showed that business activity in Japan’s private sector contracted sharply in February, driven by a steep downturn among service providers, while manufacturers signaled a moderate improvement in operating conditions.
Meanwhile, China’s property sector remains in dire straits. All of China’s largest listed developers that disclose monthly sales data reported double-digit sales drops in January. The People’s Bank of China’s (PBOC) decision to keep interest rates steady also dampened buying sentiment.
Don’t Be a Rat Brain Trade – Bew the Red Stripe Zebra !!
Trade Smart !
hpb
