Weekly Market Wrap 28/01/2022

Whipsaw trading has been seen across equity markets this week, with the VIX (volatility index) reaching its highest level since January 2021. The Federal Reserve on Wednesday gave the clearest indication yet that interest rate hikes could begin in March after chairman Jerome Powell said that “the Committee expects it will soon be appropriate to raise the target range for the federal funds rate”. Geopolitical tensions persist despite Russian officials claiming that if it was down to Russia, there will be no war.  Earnings season continues to produce mixed results.

US Market 

The S&P 500 is down 2.17% to 4,301 this week after experiencing a large fall early on in Monday trading followed by a recover of almost 200 points in the afternoon session. Federal Reserve chairman Jerome Powell told investors that the long-awaited end to the Fed’s bond purchasing program is planned to occur in March. In his update, Powell didn’t limit the number of hikes that could occur which created increased volatility in the market as it considered the possibility of 7 rate hikes in 2022 vs the 3-4 most were prepared for. The index continues to trend lower, nearing a 10% drop year to date. US labor costs rose by 4%, consumer spending fell as inflationary pressures persist comfortably above the Fed’s 2% target.

UK Market 

The FTSE 100 ended the week down 0.52% at 7,455 but performed better than many other major markets. This week saw increased volatility, but the UK index struggled for direction with each day this week seeing a significant move either to the up or downside. Investors fully expect the Bank of England to raise interest rates for the second time since the pandemic, with the central bank expected to double its base rate to 0.5%.

 European Markets                                                                    

The Euro Stoxx 50 lost 2.91% this week, falling to 4,106 whilst the DAX lost 2.44% and the CAC 40 dropped 2.35%. Ongoing tension around developments between Russia and Ukraine paired with the withdrawal of US central bank stimulus have been a cause for concern for investors despite some positive European company earnings. Data released on Friday showed that the German economy shrunk by more than expected in Q4 on 2021, mainly due to increased covid restrictions during the peak of the Omicron variant.

Fixed Income

The US 10-Year Treasury yield rose 0.017 percentage points to 1.83%, after Federal Reserve chairman Jerome Powell announced on Wednesday that Fed will likely hike interest rates in March and will also end their bond purchases.

Commodities

WTI Crude rose 3.69% to $88 this week after briefly hitting a seven-year high of $88.54 on Thursday after concerns of supply issues amid rising oil demand. Commentators continue to suggest $100 a barrel is likely to be seen in 2022.

Gold fell 2.31% to 1,783.7, the price drop came as the US Federal Reserve’s policy announcement caused treasury yields and the Dollar to rise.

The Week Ahead  

Monday – Eurozone GDP

Tuesday – RBA rate decision; Eurozone unemployment

Wednesday – Eurozone CPI

Thursday – BOE rate decision; Australia trade balance; ECB rate decision

Friday – US Unemployment; Eurozone retail sales

*Price changes as of last week’s close unless stated otherwise.