NEWS
January 2022 on the markets
JANUARY 2022 ON THE MARKETS
15.2.2022 / News
As a new year begins, all eyes are focussed on central bank comments and decisions. Inflation worldwide continues to climb and it is up to the central banks to get it under control. It's no longer a question of »if« but rather »when«, »how many times« and »by how much« they will raise interest rates.
Comments from Federal Reserve Chair Jerome Powell suggested a hike in March is extremely likely. On inflation he noted that while it is projected to decline considerably in the second half of this year, there are risks that it could continue to surprise on the upside. US inflation accelerated to 7,0% year-over-year in December and core inflation, which excludes the volatile food and energy prices, climbed to 5,5% year-over-year, the highest since 1982. Meanwhile, US fourth quarter annualized GDP growth stood at 6,9%, well above expectations of a 5,5% increase.
In the Eurozone, the European Central Bank is not as anxious to raise rates. While soaring food and energy prices contributed to a rise in annual inflation to 5.0% in December, ECB President Christine Lagarde rejected suggestions that they should start to raise interest rates more quickly in response. Eurozone core inflation however is still at a reasonable 2,6%.
But it is primarily the FED interest rate expectations that were driving the market and, as inflation continues to surpass expectations, analysts expect stronger decisions by the FED, both in terms of the number of interest rate hikes, as well as their size. This weighed on the stock market as a higher interest rate could negatively impact corporate earnings.
Markets worldwide closed in red with technology stocks and growth stocks in general taking the heaviest losses. In the United States the S&P500 lost 5,26%, the Dow Jones 3,32% and the Nasdaq Composite 8,98%. The dollar gained 1,19% against the Euro and closed at 1,1233.
In Europe the Dax, CAC and Eurostoxx lost 2,60%, 2,15% and 2,88% respectively. The UK's FTSE index was one of the few gainers, 1,08% while the Pound Sterling gained 0,60% against the Euro to close at 0,835. Also the Slovenian SBITOP index closed in green, adding 2,24%.
In Japan the Nikkei lost 6,22% while in Hong Kong the Hang Seng added 1,73%.
The energy sector performed well as WTI oil futures gained 17,21% to close at $88,15 per barrel and natural gas climbed from $3,73 to $4,874 Mmbtu in January. Energy prices climbed not only because of high demand and supply constraints, but also because of increased tensions between Russia and Ukraine. Gold and silver had modest losses with gold closing just below $1800 per ounce.
At the moment markets are very volatile and the earnings season and geopolitical uncertainties also contribute to that. Our expectation is that inflation will start cooling down, starting in the Eurozone during the second quarter followed by the US later this year. As a result, expectations on multiple interest rate hikes will in our view also temper which in turn should reduce volatility and improve market sentiment.
Rudy Marchant
Fund manager Primorski skladi