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2020 Financial Markets Update

Week in Review: February 18, 2022

Recap & Commentary

Global equity markets ended lower in a week dominated by Russia-Ukraine tensions and Federal Open Market Committee (FOMC) headlines. Uncertainty remains elevated as investors try to manage the risks of rising geopolitical tensions in Eastern Europe and FOMC sentiment that appears to change day-by-day. The VIX ended the week in elevated territory at 27.8.

Geopolitical tensions rose throughout the week. While equity markets experienced a relief rally on Tuesday, following Russian comments indicating the removal of troops from the Ukrainian border, the reprieve for markets was brief.  By mid-week, contrary to the Russian announcement, U. S. intelligence reported an increased Russian presence on the Ukrainian border.

Markets received some clarity on the path of Federal Reserve policy this week following the release of the January minutes. The minutes suggested members supported an increase to the benchmark lending rate, but contained few details related to how far rates should be moved. Markets treated the absence of explicit discussion around a 50bp hike in March as dovish, somewhat offsetting voting-member Bullard’s hawkish comments last week. The futures market ended the week pricing in a 22% chance of a 50bp hike in March, lower than the 50% chance priced in at the end of last week.

While inflationary pressures remain, the intersection of eastern European conflict and the potential for rising rates remains unclear.

Economic Commentary

The Producer Price Index (PPI) rose 1.0% month-over-month in January, the largest monthly advance since May 2021. The year-over-year increase came in at 9.7%, slightly ahead of expectations, but down 10bps from December’s level.

Retail sales came in ahead of expectations and increased month-over-month, as some holiday sales slipped from December into January. January’s reading was the strongest monthly gain since March of last year.

Industrial production increased faster than expected in January as firms ramped operations following the unexpected Omicron-driven decline in December.

Housing starts slowed in January, likely impacted by continued difficulty sourcing materials and cold weather. Starts came in at an annualized rate of 1,638k units, lower than expectations of 1,700k units.

Conversely, existing home sales grew 6.7% year-over-year in January to an annual rate of 6.5 million as housing demand remains undeterred by record-low inventory levels and rising mortgage rates.

New weekly jobless claims rose unexpectedly to 248,000, ending three consecutive weeks of declining claims.

Of Note

According to real estate data firm Altos Research, the median price of newly listed homes in the U.S. surpassed the median price of existing homes in the U.S. for the first time ever. Newly listed homes refers to homes listed in the last seven days.

S&P 500-1.6%
Small Caps-1.0%
Intl. Developed-1.9%
Intl. Emerging-0.7%
Commodities1.6%
U.S. Bond Market0.2%
10-Year Treas. Yield1.93%
US Dollar0.0%
WTI Oil ($/bl)$91
Gold ($/oz)$1,897

The Week Ahead

  • Weekly Jobless Claims

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