Market Commentary 21st March 2022 from Charlie Hancock

The energy and mining sectors weighed on the FTSE 100, with oil majors flat for the week and mining companies experiencing declines. Anglo American PLC fell by 5.53% and Glencore PLC moved 6.27% lower. Banking stocks performed well, with optimism around economic growth and the Bank of England raising interest rates providing a tailwind. Barclays PLC gained 5.88%, whilst Lloyds Banking Group rose by 8.07%.

The Bank of England’s monetary policy committee voted 8-1 in favour of raising the base rate to 0.75%. The central bank said they now expect inflation to peak “several percentage points” higher than their previous estimate of 7.25%, but stated they could do nothing to prevent higher energy and commodity prices impacting living standards

A closely watched German economic sentiment index declined sharply. The president of the institute responsible for compiling the index stated that the Russia-Ukraine conflict is significantly dampening the economic outlook for Germany.

The European Central Bank (ECB) president, Christine Lagarde, said during a conference last week that the conflict in Ukraine could trigger “new inflationary trends”. Lagarde warned that supply chains for companies will be impacted and countries will switch to different sources for new energy supplies.

The week’s economic data appeared to have little impact on investor sentiment. Retail sales for February were worse than expected. Unemployment claims declined, suggesting the labour market remains strong. The Producer Price Index showed input prices for manufacturers rose at a slower pace during February, with some speculating that inflation in the US may be starting to peak.

The Federal Reserve raised interest rates for the first time since December 2018. The Fed chair, Jerome Powell, stated during the post meeting press conference that the central bank raised rates due to an extremely tight labour market in a period of high inflation, adding that the bank anticipates ongoing rate hikes will be appropriate.

The Chinese government announced that they will introduce policies to support the economy and financial markets, whilst resolving regulatory issues in the property and technology sectors as soon as possible. The financial regulator suggested they would support overseas stock market listings, which prompted a number of Chinese companies with US stock market listings to rally. The US listed shares for Alibaba gained 24.86% across the week, whilst Tencent rose by 47.24%.

The Bank of Japan maintained their key interest rate of -0.1% last week and stated that there is no need to tighten monetary policy in response to rising energy prices. Japanese consumer prices rose by 0.6% year-on-year in February, with the increase largely attributable to higher oil prices. The government announced that the state of emergency would be lifted on the 21^st March to effectively remove coronavirus related restrictions.

The Bank of England delivered a relatively hawkish message following their policy committee meeting, but with a 0.25% rate hike widely expected, Gilt yields were not significantly impacted by the announcements.

Federal Reserve officials indicated that they now expect to raise interest rates 7 times this year. The Central Bank revised their inflation forecasts higher and downgraded their economic growth forecast from the 4% predicted at their December meeting. The bank now sees the US economy growing by 2.8% in 2022.

GBP / EUR – Current 1.1925 Previous 1.1948

The Dollar weakened against most major currencies last week, reflecting an improvement in investor risk appetite around the globe. The Pound gained 1.07% against the Dollar as a result, whilst falling by 0.19% against the Euro.