Stock markets are trying to balance the fairly strong earnings we have seen against the concerns of a withdrawal in pandemic related stimulus while the world’s major central banks are moving towards a synchronised rate hiking cycle. Now, stock markets can gain alongside rising rates as long as growth does not slow down too much. So, this is the question that investors are balancing, ‘can current growth levels be maintained?’ This question will be asked continually but if inflation is seen to rise too fast then the anticipation of aggressive action by the Fed will weigh on stocks. Watch out for any fresh concerns overgrowth to weigh on US stocks.
Other key events from the past week
- US inflation: Key Fed focus? Feb 10: Inflation is a key focus for the Fed and a core reason behind their aggressive rate hike stance. The print came in high with the y/y reading at 7.5% vs 7.3% expected and the core reading was 6.0% vs 5.9% expected. This was high & affirms the Fed’s hawkish stance.
- China: China A 50 index, Feb 11: Some analysts expect China to be the world’s leading economy by 2030. So, with the People’s Bank of China cutting interest rates is this a great time to invest in China’s shares?
- US oil: Slips from highs, Feb 09: Oil & natural gas have both risen a lot in the last few weeks on the risks associated with tensions between Russia and Ukraine. That geo-political risk is priced in for now, so with the situation not getting worse oil has able to come off recent highs at $93.
Key events for the coming week
- GBP: CPI data, Feb 16: The Bank of England hiked rates by 25bps this month and some board members favoured a 50bps rate hike as a response to surging inflation. Will the GBP rise further if inflation data shows gains this week?
- Seasonal trades: CAC 40 in focus: February tends to be a strong month for the CAC 40. With European stocks offering better value than US stocks will the CAC 40 gain as we head towards the end of February?
- AUD: Employment data, Feb 17: The RBA met this month and was happy that good progress had been made in Australia’s employment levels. However, this means that any big miss in the employment data here on Thursday will raise questions over the growing calls for the RBA to hike rates this year.