TEAM Asset Management present their weekly round up of global market activity
Investors hoping that risk assets would continue partying like it’s 1999 this year were given a stark reminder in the first few trading days of 2022 that overindulgence has consequences.
A rapid shift in sentiment left most asset classes recording losses on the week, with high growth, high beta areas of the market particularly hard hit.
Bellweather US stock indexes retreated, with the S&P 500 Index -2.6% and the technology-heavy Nasdaq dropping sharply (-5.6%) on growing expectations of near-term interest rate increases. In Asia, China’s domestic Shanghai Composite Index and Japan’s Nikkei Index both fell 2%. Amidst a sea of red, the UK’s FTSE 100 produced a positive return (+0.8%) on account of the composition of the index, with companies across banking and financial services, consumer staples and healthcare well-bid in search for ‘value’.
The chief culprit for triggering investor jitters that rippled across markets was last Wednesday’s release of minutes from the US Federal Reserve policy meeting that discussed the prospect of an accelerated timetable for raising interest rates this year, potentially as early as March. Rhetoric around the problem of inflation has also swung from complacency through much of 2021 to ‘fire-fighting’ mode now, which may also be driven by recent surveys showing broad dissatisfaction among the US public with President Biden’s handling of the inflation issue.
Government bond prices tumbled, sending the yield of the ten-year Treasury bond briefly above 1.80% on Friday, before closing at 1.76%, for an increase of 13 basis points. For reference, this was the first time the 1.80% level had been breached since January 2020, just as the Covid-19 pandemic began to infect the global population.
Meanwhile, in Europe, life is becoming uncomfortable for the European Central Bank following an unexpected jump in the Eurozone inflation rate to 5%, a fresh record high since the single currency was introduced more than two decades ago.
Inflation has risen sharply as the economy rebounds from the shock of the pandemic, activity restrictions have been lifted and supply struggles to keep pace with demand, driving up energy costs and creating a shortage of many materials.
Finally in our run-down, eye-catching moves in the crypto currency space (Bitcoin -9.3%, Ethereum -17.4%) give weight to the argument that the sector has become a credible barometer of risk positioning and investor sentiment rather than a hedge against equity market corrections. Institutional ownership is now likely having a role to play as professional money managers dial down risk exposure and reduce portfolio volatility.
Looking forward to this week, a US government report scheduled for release on Wednesday will show whether December marked the seventh month in a row in which inflation topped 5%.
Last month’s Consumer Price Index showed that prices surged +6.8% from a year earlier, the highest level since 1982. Whisper numbers suggest that the 7% level could be breached. Buckle up.