Global equity markets continue to be choppy amid the Russian invasion of Ukraine. There were conflicting reports on the progress of negotiations, which heightened uncertainty among investors. Moves by the U.S. Federal Reserve Board (“Fed”) and the Bank of England (“BoE”) to tighten policy also weighed on investor sentiment. Despite the volatility, global equities rose on the week. The S&P/TSX Composite Index advanced, led by the Information Technology sector. In the U.S., the S&P 500 Index benefitted from the strong performance of the Consumer Discretionary sector. Oil prices fell over the week, as did the price of gold. Yields on 10-year government bonds in Canada and the U.S. both finished higher.
Fed raises rates
The Fed raised the target range of its federal funds rate by 25 basis points (“bps”) to 0.25% to 0.50%, marking the first interest rate increase since 2018.
The U.S. central bank believes the interest rate increase was warranted amid surging inflation and suggested there may be up to six more rate hikes in 2022.
The Fed also noted it might begin reducing its Balance Sheet at an upcoming meeting.
The central bank did acknowledge that the Russia-Ukraine conflict could weigh down economic growth. But in the post-meeting press conference, Chair Jerome Powell tempered any recessionary fears.
In other central bank news, the BoE raised its Bank Rate by 25 bps to 0.75%, its third consecutive interest rate increase, while the Bank of Japan held steady at -0.10%.
Inflation weighing on U.S. consumers
Retail sales in the U.S. rose by 0.3% in February, slowing from the 4.9% increase in January and below the 0.4% increase economists had expected.
Higher prices at the pump inflated sales at gas stations, which was the largest contributor to the increase.
Those gains were offset by slowing e-commerce sales, as well as sales declines at furniture stores and health and personal care stores.
The data suggests rising prices may be impacting the American consumer, with higher prices for gasoline and food dragging down spending on other items.
Inflation at a 30-year high
Consumer prices in Canada in February rose at their fastest pace since August 1991.
On a year-over-year basis, Canada’s inflation rate was 5.7% in February, largely in response to higher gasoline and shelter prices, the latter of which rose by 6.6%, its sharpest increase since 1983.
The data does not reflect the impact from the conflict in Ukraine, which has put further pressure on the global supply chain and contributed to higher commodity prices.
Canadians in a spending mood
Canadian consumers returned to their spending ways in January as lockdown restrictions eased.
Retail sales rose by 3.2% in January, topping expectations and rebounding from the 2.0% decline in December.
Strong contributors to the increase were a pickup in sales at home furnishing stores, in addition to stronger sales at motor vehicles and parts dealers.
The gains were broad-based, with higher sales volumes across nine of 11 sub-sectors.
Volatility hits Chinese equities
China’s equity markets were volatile over the week as its relationship with Russia came into focus. There are growing questions about whether the U.S. would consider sanctioning Chinese businesses operating in Russia.
The Securities and Exchange Commission identified several Chinese companies it could delist from American exchanges for not meeting its audit requirements.
However, Chinese equity markets rebounded after the government pledged to keep its stock market stable, while supporting technology and property companies.
Economic growth concerns also mounted as China faced a rapid spread of the Omicron variant, which has resulted in new lockdown restrictions across the country. As one of the world’s largest manufacturers and exporters, this could add further pressure on the global supply chain.
Chinese equities, as measured by the Shanghai Shenzhen CSI 300 Index, finished lower over the week.
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