1H February Global Market Recap

 

1^st February 2022 – 15^th February 2022

FULL REPORT ACCESS LINK: First Plus Market Update 1H February 2022

Macro:

The U.S. added considerably more jobs than estimated in January even though Omicron cases spiked at the start of the new year. Nonfarm payrolls rose 467,000 in January, well ahead of the 150,000 that Wall Street estimate. Jobless rate remained low at 4%, and the labor force participation rate unexpectedly increased to the highest level since March 2020. The headline CPI in the U.S. increased 7.5% from a year ago, and Core CPI index rose 6%, the highest since 1982. With inflation at its highest level in four decades and unemployment at pre-pandemic levels, Wall Street is increasing its bets on quicker policy tightening. Goldman Sachs expects seven rate rises this year, up from its previous projection of five. JP Morgan expects the Fed to raise rates by 25 basis points at each of the next nine sessions.

 

China’s financial data exceed market expectations in January, with new total social finance (TSF) increasing to RMB6.17 trillion vs. RMB5.4 trillion expected by consensus, owing to credit expansion and net government bond issuance. Growth stabilization has come to the spotlight since the Central Economic Work Conference in December 2021. The key development drivers have become a more diverse model of infrastructure, real estate, and innovation (green economy, digital economy, and manufacturing upgrading).

 

Stocks:

Stocks in the United States declined, and market volatilities remained elevated in the first half of February as the Russia-Ukraine conflict put investors on the edge, as did concerns about the Federal Reserve's next policy decision. The blue-chip Dow Jones Industrial Average shed 0.4%. The S&P 500 lost 1% to close at 4,471. The Nasdaq Composite was down 0.7%.

 

A-share market rebounded after the Chinese New Year holiday with most indexes higher in the first half of February. The CSI 300 increased 0.8%, and SHCOMP rose 2.5%. While the ChiNext Index dropped 3.2% in the first half of February. We believe that the stabilization policies have started to take effect gradually and China enjoys comparative advantage amid the increasingly volatile overseas markets.

 

Rates:

The 10-year U.S. treasury yield increased by 26.67bps in the month as the Federal Reserve signals openness to a faster interest rate increase to curb inflation. UK inflation hit a fresh 30-year high of 5.5% in the year to January and the Bank of England (BoE) warned that consumer price inflation could peak at 7.25% by April. The BoE raised interest rates for a second time in three months, to 0.5% earlier in the month and expectations has increased to further increase rates in March, to 0.75%. The People’s Bank of China (PBoC) stepped up support for its slowing economy by pumping in cash via policy loans for a second straight month and has kept policy interest rate unchanged in February.

 

Credit:

In the US, large banks are tapping the investment-grade bond market in droves, selling floating-rate securities that are in high demand as the Federal Reserve prepares to raise interest rates. The PBoC vowed last month to open its monetary policy toolbox wider to avoid a credit collapse, sending its clearest signal yet of an easing bias after cutting policy interest rates. The market is expecting China to further ease monetary policies in the first half of the year amid the challenging economic outlook.

 

FX:

The Dollar Index fell by 0.9% in the month as the global geopolitical situation remains volatile with the Russia-Ukraine conflict unresolved. The Chinese yuan is making deeper inroads as a currency of choice for global payments, with international transactions climbing to their highest level ever. The Euro appreciated by 1.1% against the dollar as the market is expecting the European Central Bank (ECB) to lift its interest rates late in 2022 or sometime in the early months of next year, with many suggesting that it could call an end to the era of negative interest rates in Europe.

 

Commodities:

Brent and WTI crude oil prices rose by 2.3% and 4.4% respectively in the month, driven by a growing supply and demand imbalance as well as heightened geopolitical risk from the Russia-Ukraine conflict. Iran is believed to be in talks with world powers to revive its nuclear deal and a successful outcome to the talks could ease tight global supply and take some heat out of the recent oil rally. The top commodities that would be most affected should Russia invade Ukraine are Aluminum, Oil, Natural Gas and Wheat prices, with wheat being the most impacted one. US natural gas prices fell by 9.3% while US Gasoline rose by 4.5%. Commodity prices continues to surge with these levels last seen at the end of 2014.