United States
For the week, stocks rose, snapping a two-week losing drop and regaining much of the ground lost over the previous month. Multiple reasons helped markets, including lowering oil prices, news that Russia avoided defaulting on its sovereign debt, and the outcome of the Federal Reserve’s monetary policy meeting. While hostilities in Ukraine persisted, investor mood was boosted this week by ongoing talks to settle the war. Gains were widespread throughout the major indices, with the Nasdaq Composite, which is heavily weighted in technology, leading the charge.
The Federal Reserve raised its short-term lending rate by 25 basis points (a quarter percentage point), bringing the fed target rate from near zero to a range of 0.25 percent to 0.50 percent, as predicted. It was the Fed’s first-rate hike since 2018, and it signified a significant shift away from the ultra-accommodative monetary policy implemented in the early days of the pandemic. Policymakers also presented an updated economic estimate, indicating that, according to the median projection, they anticipate raising rates seven times in 2022. Furthermore, they lowered their economic growth forecast while raising inflation projections.
The inflation prediction demonstrates that policymakers expect price pressures to expand beyond the pandemic-related disruptions that triggered the initial price increase. The Fed plans to change its monetary policy stance from accommodating to neutral, and then to mildly restrictive, before the end of next year, indicating that it intends to combat inflation quickly. Following the meeting, stock markets surged, indicating that investors were pleased with the Fed’s strategy.
Treasury yields in the United States have risen in reaction to the Federal Reserve’s hawkish signals. Shorter-maturity Treasuries had the biggest yield hikes, as they are most sensitive to monetary policy changes. During intraday trade on Wednesday, the five-year yield briefly eclipsed the yield on the 10-year Treasury note, and it did so again early Friday morning, amid a further flattening of the Treasury curve.
Europe
Europe’s stock markets rose for the second week in a row, boosted by slight confidence that Russia and Ukraine may reach an agreement. The Chinese government’s announcement that it would take steps to help the economy and financial markets appeared to bolster sentiment. In local-currency terms, the pan-European STOXX Europe 600 Index advanced 5.85%. Germany’s Xetra DAX Index added 5.80%, France’s CAC 40 Index tacked on 5.75%, and Italy’s FTSE MIB Index climbed 5.13%. The UK’s FTSE 100 Index gained 3.64%.
Core eurozone bond yields climbed modestly. The benchmark German 10-year bund yield at first rose on hopes of progress in Ukraine-Russia peace talks and growing expectations that central banks would pursue more-hawkish policies to dampen surging inflation.
After ceasefire talks appeared to stagnate, yields moderated. During the week, peripheral eurozone bond prices received support. The price of Italian government debt and other sovereign issues rose on news that the European Union (EU) was considering new joint debt issuances to fund energy and defence spending.
Since last week’s policy meeting, European Central Bank President Christine Lagarde appeared to strike a more negative tone. she warned that the Ukraine conflict might unleash “new inflationary patterns.” She also stated that the invasion “presented major threats to growth,” which she believes could lower medium-term inflation if the economy takes longer to return to full capacity.
UK
Bond yields in the United Kingdom have fallen. Even though the Bank of England (BoE) hiked interest rates, markets saw a more dovish tone in policymakers’ remarks and lowered expectations for further hikes.
The Bank of England hiked interest rates from 0.50 percent to 0.75 percent in an attempt to contain inflation, which it now anticipates reaching 8% by the end of June, owing in part to Russia’s invasion of Ukraine. The Bank of England stated that “some more mild tightening in monetary policy” may be required in the coming months, while also noting that “risks on both sides of that assessment depended on how medium-term prospects unfolded.” The impact of the Ukraine-Russia conflict on business confidence and household incomes could slow the economy and lower inflation.
The BoE’s message has become more promising as a result of the possible real economic impacts of the Ukraine crisis. Because of evidence of decoupling inflation expectations, the emergence of a price-wage spiral, a robust labour market, and a buoyant services sector, there still could be three more rate hikes this year.
China
The broad, capitalisation-weighted Shanghai Composite index fell 1.8 percent this week, while the blue-chip CSI 300 index dropped 0.8 percent, but the tone after the week was upbeat after policymakers offered economic support.
The People’s Bank of China (PBOC) governor, Yi Gang, said in a statement that the central bank would assist in the implementation of the policies after the PBOC unexpectedly kept its key interest rate for one-year policy loans unchanged earlier this week, defying the majority of economists’ expectations for a cut in the medium-term lending facility rate.
According to the Wall Street Journal, the 10-year bond yield closed the week at 2.82 percent, down from 2.836 percent the week before. Prior to a meeting between US President Joe Biden and Chinese President Xi Jinping, the yuan dropped. President Biden was anticipated to warn Beijing that if it continues to back Russia, it will pay a price.
China reported stronger-than-expected growth in the first two months of the year, thanks to policy easing measures and the alleviation of power and chip shortages.
Markets for the week
|
| Weekly Index |
| YTD Index |
|
| Index | Local Currency | Sterling Pound | Local Currency | Sterling Pound |
| UK |
|
|
|
|
| FTSE 100 Index | 3.64% | 3.64% | 1.27% | 1.27% |
| US |
|
|
|
|
| S&P 500 Index | 6.18% | 5.51% | -6.18% | -3.76% |
| Europe |
|
|
|
|
| Euro Stoxx 50 Index | 5.85% | 5.97% | -8.99% | -9.07% |
| DAX 30 | 5.80% | 5.91% | -9.23% | -9.30% |
| Asia |
|
|
|
|
| Nikkei 225 Index | 6.62% | 4.01% | -6.82% | -7.73% |
| Hang Seng Index | 4.19% | 3.60% | -9.00% | -5.89% |
| MSCI Emerging Markets Index | 2.97% | 2.85% | -7.99% | -5.97% |
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