Archinomics Weekly 22.03.22

Equities

Global equity markets rallied on signs that Russia and Ukraine were making progress in agreeing a tentative peace plan. US and European equities posted their best weekly returns since November 2020, with the S&P 500 rebounding 6.2% and the EuroStoxx 50 rallying 5.8%. Chinese stocks initially slumped, as the cities of Shanghai and Shenzen entered partial lockdown and on concerns that the US may retaliate if China provides military support to Russia, but ended the week on a stronger note when China’s State Council pledged to step up support for financial markets.

Bonds

Government bonds sold off. The Federal Reserve raised interest rates for the first time since 2018 to tackle rampant inflation and upped its forecasts for the number of rate rises in this cycle. For the first time in nearly three years, the yield on the 10-year US Treasury breached 2.2% while the 10-year German Bund yield broke through 0.4%. In contrast, credit markets eked out slight gains.

Currencies

The euro rallied against most major currencies, boosted by hopes that an agreement between Ukraine and Russia may lead to a cease-fire. The British pound also advanced against the US dollar and yen.

Commodities

Oil prices declined 4.2%, with Brent crude closing the week just short of $108 a barrel. The International Energy Agency called for countries to reduce demand for oil, warning of “the biggest supply crisis in decades”. The price of gold eased 3%.

Responsible investing

P&O Ferries, which is owned by Dubai-based DP World, sparked outrage when it abruptly sacked 800 UK-based sailors and replaced them with agency staff. The UK government’s Insolvency Service will investigate whether the company’s actions breached UK employment law. 

Macro

• The US Federal Reserve raised interest rates for the first time since 2018. The federal funds rate was increased by 25 basis points to a target range of 0.25% to 0.5%. US policymakers also forecast six more rate hikes in 2022 plus another four in 2023.
• The Bank of England raised the base rate by 25 basis points to 0.75%, marking the third consecutive increase since last December. The Bank indicated that UK inflation is now likely to hit 8% in the second quarter.
• In China, the authorities indicated the government would take measures to boost the economy in the first quarter, as well as introduce policies that are favourable to the market.

• In his Spring Statement, UK Chancellor Rishi Sunak is expected to announce measures to help families battling a cost-of-living crisis. Cuts in fuel duty are among measures reportedly being considered. 
• In Europe, flash indicators of economic activity (purchasing managers’ indices) will provide some of the first evidence of how the impact of the Russia/Ukraine war is affecting European economies.