Weekly Recap 14-18 March 2022

There have been a lot of moving events during the past week, most notably the monetary policy decisions of the Fed and the Bank of England. Those decisions, which reflected a clear shift in the direction of monetary policy, led to a change in the price movement.

The US Federal Reserve announced on Wednesday that the Federal Open Market Committee (FOMC) had voted to lift the Federal Funds Rate (FFR) target range to 0.25-0.50% from 0.00-0.25%, as expected. In the Fed’s updated statement on monetary policy, it signaled that further rate hikes would be appropriate, as expected.

Eight out of nine policy voters supported the move, with the one dissenting vote coming from St Louis Fed President James Bullard who favored a larger 50bps move to 0.50-0.75%. The Fed said it expects inflation to return to its 2.0% target and for the labor market to remain strong with an appropriate firming of the stance of monetary policy.

Wall Street

On Friday, Wall Street’s three major indexes closed higher, boosted by recently battered technology stocks, after talks between US President Joe Biden and Chinese President Xi Jinping over the Ukraine crisis ended without significant surprises.

Investors’ eyes were also directed to the slowdown in the rate of increase in oil prices, while they are still digesting the US Federal Reserve’s rise in interest rates on Wednesday and its strict plan to adopt more increases aimed at facing the rising inflation.

US President Joe Biden warned Chinese leader Xi Jinping during a call that there would be “consequences” if Beijing provided material support for Russia’s invasion of Ukraine, the White House said. Both sides stressed the need for a diplomatic solution to the crisis.

While Xi called on NATO countries to have a dialogue with Moscow, he did not blame Russia for the invasion.

Europe

European shares rose on Friday, extending solid gains earlier in the week, as investors turned their attention to peace negotiations between Russia and Ukraine and talks between US President Joe Biden and his Chinese counterpart Xi Jinping.

The pan-European Stoxx 600 index closed 0.9 percent higher, with technology stocks leading the gains.

The benchmark index recorded its best weekly performance since November 2020, amid optimism about peace talks over the conflict in Ukraine, which has shaken global markets.

US President Joe Biden and Chinese President Xi Jinping spoke in a video call on Friday about Russia’s invasion of Ukraine, and Chinese media said Xi stressed that such disputes are not in anyone’s interest.

Boosting sentiment, Russia paid interest on $117 million in sovereign dollar bonds, reducing doubts about its ability to meet external debt after harsh sanctions imposed by the West.

Oil

Oil prices closed higher on Friday, March 19th. Still, it recorded the second consecutive weekly loss after a volatile trading week amid difficulty in finding an alternative to Russian oil in a market suffering from shortages.

Brent crude futures closed up $1.29, or 1.2%, to $107.93 a barrel a day after rising about 9% in the biggest daily percentage gain since mid-2020.

US West Texas Intermediate crude futures closed up $1.72, or 1.7%, at $104.70 a barrel, adding to a jump of 8% in the previous session.

Both benchmark contracts ended the week down about 4% after prices moved within the $16 range.

Prices reached their highest level in 14 years nearly two weeks ago, prompting a wave of profit-taking.

After the fourth day of talks with Ukraine, Russia said no agreement had yet been reached. However, there were some signs of progress earlier in the week.

Gold

Gold posted its biggest weekly drop in nearly four months after the demand for the safe-haven metal was hit by hopes of progress in peace talks between Russia and Ukraine and by the fallout from US interest rates.

The price of gold fell 1.1% to $ 1921.5 an ounce, affected by the dollar’s rise, as it jumped against other major currencies, making gold more expensive for buyers from outside the United States.

During the week, gold was down 3.5% as sentiment in the broader financial markets was boosted by optimism about peace talks, reducing demand for safe-haven assets.

Currencies

The euro fell on Friday but posted its biggest weekly gain in six weeks as traders breathed a sigh of relief after Russia avoided defaulting on dollar-denominated debt and markets digested the broader impact of the start of the US interest rate hike cycle.

The euro slipped to $1.10 despite the broad dollar losses and positive comments from European policymakers that supported the euro. Dutch central bank chief Klaas Knot said he expects to raise interest rates only once.

The euro was down 0.5% at $1.1037 on Friday. Still, the single currency was up 1.52% for the week and on track for its biggest weekly gain since the first week of February when European Central Bank President Christine Lagarde first indicated that interest rates would rise in the eurozone in 2022.

As for the dollar index, which measures the performance of the US currency against six major currencies, it caught its breath on Friday and rose by 0.4 percent to 98.36 after declining daily this week, and it was on its way to a loss of one percent during this period. It fell to 97.724 on Thursday for the first time since March 10.

The Japanese yen remained near a six-year low after the Bank of Japan kept its super accommodative policy unchanged on Friday, as widely expected. It bucks the trend of developed world central banks exiting emergency measures over the coronavirus pandemic.

Calendar

Retail Sales in the US rose by 0.3% on a monthly basis in February to $658.1 billion, the data published by the US Census Bureau showed on Wednesday. This reading fell short of the market expectation for an increase of 0.4%. On a positive note, January’s print got revised higher to 4.9% from 3.8%.

There were 214,000 initial jobless claims in the US in the week ending on 12 March, less than the 220,000 expected and below the week prior, when there were 229,000 claims (revised up from 227,000), data published by the US Department of Labor (DOL) revealed on Thursday. The four-week moving average of initial claims thus fell to 223,000 from 231,750 the week before.

US Existing Home Sales fell to 6.02M in February from 6.49M in January, larger than the expected drop to 6.10M, according to data released by the National Association of Realtors. That marked a 7.2% MoM drop versus January. The total inventory of homes for sale was 870K, which equates to roughly 1.7 months worth of homes, the data showed. The median price of homes sold was $357,300, 15% higher versus February 2021.