2H February Global Market Recap
16th February 2022 – 28th February 2022
FULL REPORT ACCESS LINK: First Plus Market Update 2H February 2022
Personal spending in the United States increased more than expected in January although soaring prices and financial market turmoil caused by the Russia-Ukraine conflict continued to dampen consumers' willingness and capacity to spend. Personal spending increased by 2.1% MoM in January and retail sales rose 3.8% MoM. However, with an increase in compensation largely offset by a reduction in government benefits, real personal income in the United States fell by 0.5% in January after falling by 0.3% the previous month.
In January, China's factory-gate inflation rose 9.1% from a year earlier, slowing to its lowest level in six months. China's CPI increased by 0.9% in January over the previous year, lower than economists’ forecast of 1% increase and 1.5% rise in December. The slowing price gains owe mostly to new coronavirus restrictions, government measures to contain rising raw material costs, and weaker property sector demand.
Risk-off sentiment swept global markets in the first half of February and caused a steep drop in stocks amid rising geopolitical tensions between Russia and Ukraine. While the US stock markets steadied and rallied in the final week of the month, rebounding from some of the significant losses suffered earlier in the month, geopolitical uncertainties continue to be headwinds in the short term. The S&P 500 fell 3.1%, the Dow Jones Industrial Average dropped by 3.5% while the Nasdaq Composite fell 3.4%.
Since February, the A-share market has been recovering from the steep plunge that occurred around the Chinese New Year holiday. In addition, average daily turnover has increased from Rmb800 billion to almost Rmb1 trillion. In February, the CSI 300 Index jumped 0.4%, the SHCOMP Index rose 3%, the CSI Smallcap 500 Index surged 4.1%, and the ChiNext Index fell by 1%. We believe that China’s stabilization and pro-growth policies are taking effect.
The 10-year U.S. treasury yield decreased by 14 bps in the month as investors remained focused on Russia’s attack on Ukraine and its potential impact on Federal Reserve rate hikes. The big moves in benchmark U.S. Treasuries were mirrored across the yield curve and in foreign bond markets. Federal Reserve’s Chair Jerome Powell told congress that despite the war in Ukraine, the central bank still plans to raise its key interest rate in March, with proposals for a quarter-point hike, rather than a half-point. The market is still expecting the Bank of England to raise rates from 0.5% to their pre-pandemic level of 0.75% on March 17. During the recent start of the series of National People’s Congress meeting, the People’s Bank of China (PBoC) has pledged to keep its monetary policy flexible and responsive to changing economic conditions, with an overriding objective of achieving stability.
Spreads on U.S. investment-grade (IG) bonds has hit its highest level since October 2020 as reported by Bloomberg. As the US readies to increase interest rates in March, investors have withdrawn billions of funds that buy US high-yield bonds so far this year and poured money into funds that buy US leveraged loans, according to Financial Times. The European market resumes their debt offering with issuances already slowing prior to the invasion and is expected to remain stop-and-go depending on daily market conditions. China’s property-bond market remains deeply distressed as real-estate sales fall and investors retreat on a lack of trust.
The Dollar Index rose by 0.2% in the month and hit its highest level since May 2020 as investors’ anxiety swelled due to Russia’s invasion of Ukraine. Investors dash to assets perceived as safer such as gold, U.S. government bonds and the dollar. The Chinese yuan has appreciated to a level not seen in nearly four years on China's robust exports and an influx of funds into its capital markets. The Euro fell by 0.1% over the month as worries increased over the impact of the escalating Ukraine-Russia conflict, especially on Europe's growth outlook. The AUD strengthened by 2.7% as Australia exports many commodities which have seen a dramatic surge in prices due to the Russian-Ukraine war.
Brent and WTI crude oil prices rose by 10.7% and 8.6% respectively in the month as the Russian-Ukraine war drove prices upwards. Saudi Arabia raised oil prices for all regions as importers rush to secure supplies amid uncertainty about Russian flows following the imposition of severe sanctions on Moscow. Wheat prices rose by 21.9% as the war halts exports from Ukraine and Russia, which combined account for about 30% of the world’s traded wheat and still have crops from last year to ship. Commodity prices continues to surge with the CoreCommodity CRB Index gaining 5.5% in the month, with these levels last seen at the end of 2014.