US Inflation Reaches 7.0% as Rate Concerns Hit Markets

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17/01/2022
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Global equity markets retreated last week as concerns regarding the near term path for inflation continued to gather momentum. The latest round of CPI data in the US revealed that the headline index hit 7.0% last month [1], the largest figure since June 1982. The dual impact of surging demand amid scarce supply continues to put significant upwards pressure on prices with key items such as energy and groceries rising sharply over the past 12 months. With the Fed now expected to hike interest rates three or potentially even four times this year, most major equity indices concluded the week in negative territory.

In the US, the S&P500 declined by -0.3%, a second consecutive weekly decline with the tech sector seeing further weakness. On the Continent, European bourses took the lead from their American counterparts with the German DAX and French CAC40 falling by -0.4% and -1.1% respectively. The Nikkei 225 in Japan also lost ground with the index dropping by -1.2%. Sentiment has also been hit by a further wave of COVID cases in the capital Tokyo with the country also extending the ban on non-residents entering the company until next month. One major market to buck the negative trend was the FTSE100 which rose by +0.8. [2]

After the prior week’s sharp increases, sovereign bond yields were somewhat muted last week despite the pullback in global equity markets. The 10-year US Treasury yield was unchanged at 1.77% whilst the equivalent duration UK gilt yield declined by 3 basis points (bps) to 1.15%. The 10-year Eurozone benchmark fell by a single basis point to -0.13%.

Moving to commodity markets, Brent Crude rallied by +5.2% to $86.17 a barrel on supply worries and expectations that the Omicron variant may not prove to be as disruptive as initially feared. Copper and gold prices also rose last week, the former by +0.4% to $9,730 a tonne and the latter by +1.7% to $1,821 an ounce. [3]

 

Week Ahead

Inflation and unemployment data are amongst the standout figures released in the UK this week. Retail sales are also published by the ONS later in the week. It’s a somewhat muted week in the US, in part due to Monday’s Martin Luther King day with building permits and housing starts the only figures of note expected. Inflation data is also due from the Eurozone this week whilst Economic Research centre ZEW publishes its monthly sentiment indicators on Tuesday. In Japan, the Bank of Japan hosts its first policy meeting of 2022 on Thursday with no changes expected to be made on this occasion. Meanwhile in China, a raft of key figures was published in the early hours of Monday morning, the key one being Q4’21 GDP which showed the economy growing by +4.0%, a 90bps reduction on the prior quarter. Retail sales, fixed asset investment, industrial production and unemployment were also released. [4]

 

[1] U.S. Bureau Of Labor Statistics, 17/01/2022

[2] T. Rowe Price, 17/01/2022

[3] Refinitiv, 17/01/2022

[4] Forex Factory 17/01/2022

 

 

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