Friday, March 4, 2022
U.S. and International Equities
This week, all major equity markets finished lower. Fears of further escalation in the devastating Russia-Ukraine conflict have added to the previously existing monetary policy uncertainty and given market participants pause this week. Energy, which has dominated all S&P 500 Index sectors year-to-date, continued to lead all sectors as oil reached levels not seen since 2008. Western Europe’s reliance on Russian energy and the strong U.S. dollar drove international and emerging market underperformance based on the MSCI EAFE and Emerging Market indexes.
Fixed Income Rallied Higher
The Bloomberg Aggregate Bond Index finished higher, reversing five straight weeks of declines. High-quality bonds caught a bid as traders took solace in safe haven Treasuries amid the challenging geopolitical climate. This sentiment also carried over to investment-grade credit, as tracked by the Bloomberg Credit Index. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, were able to eke out a small gain for the week despite their equity market sensitivity.
Commodities positive for the week
Crude oil surged more than 20% this week, reaching prices not seen since 2008 as Russia’s attack on Ukraine caused traders to bid the commodity higher. Moreover, natural gas finished positive for the third straight week. Additionally, the major metals, gold, copper, and silver finished the week higher. Meanwhile, while wheat and corn prices surged double digits for the week due to fears of severe supply disruptions in Ukraine, a top global grain exporter.
Economic Weekly Roundup
U.S. Manufacturing Solid
The Institute for Supply Management (ISM) reported this week that the outlook for manufacturing is favorable. U.S. manufacturing increased more than economists expected in February as COVID-19 cases declined. In addition, the ISM index of national factory activity improved from January. Backlog orders in February increased by the most in 11 years, reflecting solid demand but also continued strains on supply chains.
The Federal Reserve (Fed) published its Beige Book this week detailing economic conditions across the country. Given the most recent consumer and producer price indexes, it was no surprise to the Fed that inflation appears to be showing no signs of curtailing. Prices charged to consumers “increased at a robust pace across the nation.” Moreover, the Beige Book found that economic activity increased at a “modest to moderate pace” over January and February of this year. In addition, the survey noted that consumer behavior was generally weaker given COVID-19 Omicron cases, price increases, as well as severe weather across the U.S.
Jobless Claims Decline Again while the Unemployment Rate Reaches 3.8%
Friday’s February unemployment report saw continued improvement in the employment rate from January. Nonfarm payroll employment rose by almost 680,000 in February and these jobs gains were broad based. The economists’ consensus forecast was 423,000.
Initial claims for unemployment insurance for the week ending February 26 came in below last week’s total as well as economists’ expectations. This was the lowest level since the beginning of this year. Moreover, continuing claims increased marginally from the prior week and came in above economists’ estimates. Consumer sentiment remains optimistic towards the labor markets according to the Conference Board as low initial and continuing claims may be signaling a long-awaited rebound in labor participation.
The following economic data is slated to be released during the week ahead:
- Monday: January consumer credit
- Tuesday: February National Association of Independent Business (NFIB) Small Business Index, January trade balance, wholesale inventories
- Wednesday: January Job Openings and Labor Turnover Survey (JOLTS)
- Thursday: Weekly initial and continuing unemployment claims, February consumer price index (CPI), hourly earnings, average workweek, Treasury budget
- Friday: March University of Michigan Consumer Sentiment
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