Archinomics Weekly 07.03.22

Equities

Equities were hit hard, with European markets taking the brunt of uncertainty over events in Ukraine. US indices were buoyed in part by the energy sector, but dragged lower by financials and consumer discretionary sectors. Japanese indices weakened, as the yen firmed. Chinese markets were subdued ahead of the week-long annual meeting of parliament, where lower growth targets are expected.

Bonds

US Treasury bonds displayed their safe haven attractions, as yields reversed their recent gains as prices rose. Core eurozone bond yields also declined in volatile trading. Investment grade bond markets saw some buying interest, providing support for new issuance, while high yield bond markets slipped lower in quiet trade.

Currencies

The US dollar outshone all majors except the yen, which was stronger across the board. The euro weakened significantly, while sterling was only able to make ground against the euro.

Commodities

Commodity prices spiked at the sharpest weekly rate for five decades, driven by energy prices, as future supply from Russia came into question. Gold continued its recent positive trajectory, rising 4.3% on the week.

Responsible investing

European leaders looked to move rapidly to wean their economies off Russian gas, turning their focus to renewable energy sources, as the International Energy Agency urged the EU not to sign new supply agreements.

Macro

• Chair Jay Powell confirmed that the Federal Reserve would ‘move carefully’ on interest rates, dispelling fears of a 50 basis point hike in March.
• US February non-farm payrolls beat forecasts at 678,000, as the unemployment rate fell to 3.8% and average earnings remained stable.
• Toyota shut down production at all Japanese plants after a cyber attack on a key supplier, thought to be in reprisal for tough Japanese sanctions on Russia.

On the radar

• The ECB meeting could bring adjustments to growth and inflation forecasts, given developments on Europe’s eastern borders.
• US February headline CPI inflation data could show an increase, reflecting higher energy costs, while underlying prices are expected to moderate.