Last week the market got predominantly spooked by a high inflation reading, implying more signs that the higher signs are taking a toll on consumer sentiment. The 10-year Treasury yield broke past the 2% mark for the first time since 2019, expectations for more aggressive Fed tightening were ratcheted higher, and rate-sensitive sectors along with growth stocks underperformed. The S&P MidCap 400 and small-cap Russell 2000 indexes recorded modest gains, whereas the technology-heavy Nasdaq Composite fared worst and ended the week down roughly 15% from its record. In addition, there is a tug of war between healthy earnings growth and fears over monetary tightening. Lastly, warnings from U.S. officials that a Russian invasion of Ukraine might be imminent may have also contributed to selling pressure around Thursday and Friday.
Meanwhile, shares in Europe rallied, driven by strong earnings. The EuroStoxx 600 Index ended 1.61% higher. Value - and cyclical stock, in particular, did well. The German DAX Index advanced 2.16%, Italy’s FTSE MIB Index gained 1.36%, and France’s CAC 40 Index tacked on 0.87%. The UK’s FTSE 100 Index climbed 1.92%, helped by better-than-expected economic data.
On the economic side, the EC downgraded its 2022 outlook for economic growth in the European Union (EU) and eurozone to 4.0% from its previous forecast, issued last fall, for a 4.3% expansion. The winter update to the EC’s forecasts said inflation was expected to accelerate to 3.9% in the EU and 3.5% in the eurozone before stabilizing to less than 2.0% the year after. Inflation fears and rate hikes are also on the radar in Europe. Last week, the heads of the Dutch and German central banks separately commented that the ECB should be decreasing its asset-purchase programs to prepare for potentially raising interest rates before the end of 2022. In contrast, Christine Lagarde pushed back against potentially tightening policy prematurely, indicating that record-high inflation could subside and approach the central bank’s 2% target in the medium term. She seemed to adopt a cautious stance, saying there was no need for “measurable tightening” of policy. She added that the ECB saw “no need to rush to any conclusion now, since the outlook is uncertain.” She then stressed in an interview at the end of the week that an increase in interest rates would not bring down inflation and could undermine the economic recovery.
In the Far-East, Japan's stock market did well. The Nikkei 225 Index rose 0.93% and the broader TOPIX Index up 1.66%, also driven by solid corporate earnings. In China, the Shanghai Composite Index increased by 3% and the CSI 300 Index added 0.8% since January 28, the last day of trading before a weeklong Lunar New Year holiday.
For the week ahead, the economic calendar consists of several major releases: Consumer credit (monday), trade balance (tuesday), wholesale inventories (wednesday), CPI (Thursday, !!), weekly unemployment claims (Thursday, !!), U.S michigan sentiment (Friday). Keep an eye on these releases since they have been shown to move markets.
It is the day of Cupid. The day for smug couples and lonely losers. In that spirit; let’s identify them. First, the smug couples:
Heij Fidelity and Borsa Valori: as a striding couple walking over the boulevard looking down on people these two smug groups rose violently this week. Both had a positive weekly return rising 13 and 9 places respectively.
Now let’s move on to the lonely losers:
Batavia Vrouwen and Negotium Novum: They are sitting at home watching a whorrid romcom and slobbering over a bucket of ice cream as they have dropped like an elephant from the sky. Negotium dropped 12 places to the thirtieth place and Batavia Vrouwen were expected to not do any worse as they were, let’s just say, not on a roll already however they managed to drop even more to a quite embarrassing last place sporting an M2 of -27.37%. One positive thing; you can't drop any lower.
I want to wish you all a happy valentines day and hope to see you at the valentines dinner tomorrow at Bregje!