Inflation worries and Russia/ Ukraine fears weigh on stocks

Macroeconomic/ geopolitical developments

• Another inflationary shock to the upside with the release of the US CPI data on Thursday that saw a print of 7.5% on an annual basis, above consensus estimates and at its highest level for 40 years, since 1982.

• The surging inflation data from the US (and globally so far in 2022) has reinforced the expectations of an even more hawkish reaction from the major, global central banks.
• The more hawkish members of the FOMC are now indicating a possible 0.5% increase at the March meeting with Goldman Sachs now predicting 7 rates hikes this year, one at each meeting in 2022.
• Although the European Central Bank and President Christine Lagarde pivoted towards a tightening stance at their early February meeting, in subsequent comments ECB members including Lagarde have tried to calm market fears of a significantly more hawkish shift.
• The end of last week saw a “risk off” theme reinforced by indications from the US that conflict between Russia and Ukraine could be imminent.

Global financial market developments

• Again, global stock averages were extremely erratic last week, but concerns over the possible conflict between Russia and Ukraine, alongside global yields spiking higher saw a weak close to the week, led by the US indices and in particular the tech sector.

• Higher yield pressures extended through last week, with US Treasury yields at multi-year highs and the US 10yr Note breaching the psychological 2% level, though yields did fall on Friday with a safe haven bond rally given worries over the possible conflict between Russia and Ukraine.
• The US Dollar rallied, undoing some of the prior week’s losses, with a safe haven bid, plus benefiting from the higher US yields and wider yield differentials.
• Gold surged, even with a firmer US Dollar, as a safe haven and inflation hedge.
• Oil again extended its rally into 2022, to yet another new multi-year high.
• Copper tried to breakout to the upside, but fell at the end of the week, but has a more positive bias in broader range.

Key this week

• Geopolitical focus: Closely watching for military developments on the Ukrainian/ Russian border.  
• Central Bank Watch: The only Central Bank activity of note are the release of the RBA and FOMC Minutes on Tuesday and Wednesday respectively.
• Macroeconomic data: the UK Employment and CPI data, alongside US Retail Sales are the standout data points for the week.

Steve Miley (The Market Chartist)

Editor in chief

Steve Miley is the Market Chartist and has 32 years of financial market experience and as a seasoned expert now has many responsibilities. He is the founder, Director and Primary Analyst at The Mar... Continued