A review of the week’s top global economic and capital markets news.
For the week ending 21 January 2022
As of noon Friday, global equities declined for the third straight week to start 2022 with the tech-heavy Nasdaq Composite Index falling more than 10% from its November high. The yield on the US 10-year Treasury note rose to a two-year high before settling at 1.78%, and the price of a barrel of West Texas Intermediate crude oil hit a seven-year high and finished at $85.08. Volatility, as measured by the Cboe Volatility Index (VIX), surged to 25.7 from 20.3 on the week.
MACRO NEWS
UK inflation at 30-year high
Inflation in Britain rose faster than expected to a near 30-year high in December, which could place pressure on the Bank of England to raise interest rates again. The annual rate of consumer price inflation increased to 5.4% from November’s 5.1%, the highest level since March 1992, the Office for National Statistics (ONS) said. Economists polled by Reuters had expected a rise to 5.2%. Financial markets now price in a more-than-90% chance that the BOE will raise its main interest rate to 0.5% on 3 February. Last month the central bank became the world’s first major central bank to tighten policy since the start of the COVID-19 pandemic. UK retail sales dropped by 3.7% in December from the previous month, according to ONS statistics, well below the 0.6% fall expected by economists polled by Reuters.
China reacts to slowing growth
China’s central bank cut its benchmark lending rates again on Thursday amid concerns about an economic slowdown in the world’s second-largest economy. The People’s Bank of China reduced the one-year loan prime rate by 10 basis points from 3.8% to 3.7%. In December, the PBOC cut the one-year loan prime rate for the first time since April 2020. The five-year loan prime rate was lowered by five basis points from 4.65% to 4.6%, representing the first cut since April 2020. Previously, retail sales grew by 1.7% in December from a year ago, which was much lower than the 3.7% growth estimate by analysts surveyed by Reuters. China’s factory production faces large downward pressure for the first quarter, an official with the national Ministry of Industry and Information Technology said Thursday, as the industrial economy has not yet experienced a firm recovery due to the pandemic, weakening trade growth and a lack of consumer demand.
An eye on emerging markets
Pivotal elections, referendums, reforms and geopolitical tensions could shape the economic trajectory of emerging markets this year. The World Bank cautioned last week that emerging economies are particularly vulnerable as growth slows in 2022 and 2023 amid worries over new COVID variants, surging inflation, debt and income inequality and an unwinding of fiscal and monetary stimulus. A key theme analysts will be looking at in 2022 is how the results of landmark elections may lead to a shift away from austerity policies in several high-profile EM nations, which could raise concerns about public debt.
US homes sales drop
Closed sales of previously owned homes fell 4.6% in December to a seasonally adjusted, annualized rate of 6.18 million units, according to the National Association of Realtors. Sales were down 7.1% year over year. Full-year 2021 sales came in at 6.12 million, an increase of 8.5% from 2020, making 2021 the strongest sales year since 2006. There were just 910,000 homes for sale at the end of December, a drop of 14.2% from December 2020. At the current sales pace, that represents less than a two-month supply, with a balanced market between buyers and sellers averaging a four- to six-month supply. Both the total supply and month’s supply are at the lowest levels since 1982, when the NAR began measuring them.
WHO warns of new COVID variants
The World Health Organization on Tuesday said the pandemic will not end as the Omicron variant subsides in some countries, warning that the high levels of infection around the world will likely lead to new variants as the virus mutates. High levels of transmission give the virus more opportunity to replicate and mutate, raising the risk that a new variant will emerge. New infections have increased by 20% globally over the past week, with nearly 19 million total reported cases, according to the WHO, but including unreported cases would make the actual number significantly higher.
QUICK HITS
Kristalina Georgieva, managing director of the International Monetary Fund, said that interest rate hikes by the US Federal Reserve could “throw cold water” on already weak economic recoveries in certain countries. The IMF expects the global economic recovery to continue but stressed that it was losing momentum.
The Bank of Japan raised its inflation forecasts on Tuesday but said it was in no rush to change its ultra-loose monetary policy as rising prices are giving rise to speculation that its decade-old stimulus experiment may change.
US homebuilder confidence fell one point in January to 83, according to the National Association of Home Builders/Wells Fargo Housing Market Index. Any reading above 50 is considered positive, but this is the first drop in four months.
Among individuals who began investing last year, 86% plan to increase their stock holdings in 2022, according to a recent survey from Investing.com. This is despite only 67% of new investors making a profit in 2021 as compared to 87% of more experienced investors.
Jobless claims in the United States for the week ended 15 January totaled 286,000, well above the Dow Jones estimate of 225,000 and a substantial gain from the previous week’s 231,000. The number was the highest since the week of 16 October and marks a reversal after claims just a few weeks ago hit their lowest level in more than 50 years.
Nearly four million children could fall into poverty this month following the end of monthly pandemic-linked child-tax-credit payments in December, according to a new analysis from Columbia University. That would translate into a child poverty rate of approximately 17% from 12%, according to the Center on Poverty and Social Policy at Columbia.
Ukraine’s central bank raised its main interest rate to 10% from 9% on Thursday to try to tackle persistently high inflation and the economic fallout from a standoff with Russia. The National Bank of Ukraine said it could hike rates again at its next policy meeting in March and signaled that monetary conditions would remain moderately tight.
EARNINGS NEWS
With about 13% of the constituents of the S&P 500 Index having reported for Q4 2021, blended earnings per share (which combines reported data with estimates for those that have yet to report) shows that earnings growth is running at 22.8% while sales rose about 13% compared with the same quarter a year ago, according to data from FactSet Research.
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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research, CNBC.com.
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