U.S. and International Equities
Markets Finish Mixed
Investors sold off equities amid the continued Russia-Ukraine conflict along with its effects on inflation. This week’s Federal Open Market Committee meeting minutes added concerns over monetary policy and continued to weigh on investor sentiment. International equities, per the MSCI EAFE and the MSCI EM, gave back last week’s gains to finish the week lower.
Energy continues to lead the market following higher commodity prices. In addition, defensive areas of the market, such as the utilities, consumer staples, and health care sectors, had strong showings for the week and are the only sectors outside of energy in the green for 2022. While we believe that the risks to a recession are low, some market participants may be thinking otherwise, especially in light of higher than normal inflation and hawkish monetary policy.
Fixed Income Lower
The Bloomberg Aggregate Bond Index finished lower, reversing last week’s higher close and reverted to its downward trend this year. High-yield corporate bonds, as tracked by the Bloomberg High Yield index, also followed suit as traders sold off high yield amid relatively more attractive high yield bond spreads vs. Treasuries.
Crude oil prices fell for the second straight week due to increased supply from international oil stockpiles, highly uncertain geopolitical landscape in Eastern Europe, and further lockdowns in China. Natural gas prices finished higher for a third consecutive week and are up over 70% for the year. The major metal prices – gold, silver, and copper – finished the week mixed.
Economic Weekly Roundup
This week, the Federal Reserve published its Federal Open Market Committee March minutes. The minutes revealed the Committee’s interest in starting quantitative tightening (QT), allowing the Fed’s balance sheet to contract and do QT much faster than the previous round five years ago. The Federal Reserve’s bond holdings could decline by as much as $95 billion a month, but this would not happen for a few more months as their plans become finalized. The most recent employment report was strong enough to support a 50 basis point hike in rates at the May meeting and possibly at the June meeting.
ISM Non-Manufacturing Growth Continues
The ISM Services Index rose to 58 in March, slightly higher than February’s reading. This reading represents the 22nd straight month of service sector growth, which has expanded for all but two of the last 146 months. Supply chain challenges continue at about the same levels as February. Moreover, employment has improved as COVID-19 cases are declining.
Initial Claims Better than Expected; Continuing Claims Increase
Initial claims for unemployment insurance for the week ending April 2 came in below the previous’ week’s total as well as below economists’ expectations. In addition, continuing claims increased from the prior week. This was below economists’ estimates as well. The data continues to illustrate a tight labor market that is unlikely to dissuade the Fed from focusing on the inflation in the near term.
The following economic data is slated to be released during the week ahead:
- Tuesday: March Consumer Price Index, Treasury Budget
- Wednesday: March Producer Price Index
- Thursday: Weekly Initial and Continuing Unemployment Claims, March Export/Import Prices, March Retail Sales, February Business Inventories, April University of Michigan Sentiment
- Friday: March Capacity Utilization, Industrial and Manufacturing Production
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