Market Update – 16th March 2022.

16th March 2022

In China this week, we saw the release of retail sales, industrial production and fixed asset investment all come in significantly above economists’ expectations. These are strong signals that China’s economy is recovering, and whilst we have seen an increase in Covid-19 cases recently which may hamper the near-term outlook, we believe the medium to long-term outlook for investment in China is strong. This view was further supported following a meeting earlier today of China’s top financial policy committee – The Financial Stability and Development Committee – which concluded that there is a need to “boost the economy” and that government departments should “actively introduce policies that benefit markets”. This announcement saw a strong rally in Chinese and broader Asian markets.

In other news, the basket of goods that is used to calculate the Consumer Price Index had its annual review this week. The basket aims to represent relevant goods and services bought by households, which are then price tracked over time to measure inflation.

The basket evolves over time (as do our consumer habits) and this year, we have seen the removal of domestic coal sales (ahead of the sale of domestic coal being banned in 2023 to help combat climate change), and also doughnuts.

As plant-based diets grow, meat-free sausages were added to the basket of goods. Other additions include pet collars and sports bras.

For the rest of the week, we face a wave of interest rate decisions, which will be all be driven by the backdrop in Ukraine.

To kick us off, we have the Federal Open Market Committee interest rate decision, statement and press conference later today. We expect to see a 0.25% interest rate increase, following the Federal Reserve chair, Jay Powell’s announcement of his intentions earlier in the month, taking markets back from the precipice of a 0.5% rate rise. This narrative feeds our view that rates will remain lower for longer, seeing central banks remain data dependent and accommodative as rates slowly and steadily rise over the longer term. We will also see the Bank of England’s interest rate decision on Thursday, followed by the bank of Japan’s on Friday.

Whilst central bank policymakers have to contend with high levels of inflation, they also have to consider any potential economic impact of a war in tandem with high level of interest rates, as we must remember, central banks aren’t just responsible for keeping inflation at bay, but also maintaining the health of the economy as a whole.

As we said earlier in the week, we’ve seen a big jump in energy prices recently. Whilst the situation in Ukraine and sanctions against Russia are likely to keep upward pressure behind the energy price, the oil price fell this week, and has fallen back below $100 a barrel. This relief came in part after Sergei Lavrov, Russian Foreign Minister, said that Moscow was in favour of the Iran nuclear deal resuming, which would see sanctions on Iran’s oil sector lifted.

To finish the week’s vital data, on Thursday, we have Eurozone CPI and US Industrial Production.

Hannah Owen, Portfolio Specialist.