Markets update: Equities higher as Fed begins tightening monetary policy

Stocks finished the week higher as the Federal Reserve announced its new policy statement which came with a quarter-point interest rate increase, the first rate rise since 2018, writes Ian Slattery.

Ian Slattery, Zurich Insurance

This is the first of several more rate hikes expected by investors as inflation expectations become embedded and pose risks to growth. This rate hike comes amid prices climbing at the fastest pace in 40 years and an uncertain geopolitical picture sparked by Russia’s invasion of Ukraine. Economic data this week had a limited effect on markets. 

US retail sales rose 0.3% in February, slightly below economists’ forecasts. The modest increase in February largely reflected higher prices rather than volumes. 

Meanwhile, data on industrial production and housing underscored a similar backdrop across the economy—price pressure remains hot and supply is still hard to come by. 

Shares in Europe gained ground for a second consecutive week amid cautious optimism that negotiations between Russia and Ukraine could yield a diplomatic solution. The Moscow stock exchange remained closed during the week of March 18. Russian bonds moved higher on Friday, buoyed by reports that the correspondent bank had processed interest payments on two of the country’s sovereign bonds and transferred the funds to the payment agent to disburse to investors.

The world’s second largest economy, China reported better-than-expected activity in the January-February period with help from policy easing measures and the easing of power and chip shortages. However, the world’s most indebted property developer continues to garner the headlines with trading in Evergrande shares halted this week, pending an announcement by the company. While systemic fallout may be limited, the long-term implications are significant.

Equities

Global stocks were up last week by 5.9% in euro terms and up 6.5% in local terms. Year-to-date global markets are down -3.8% in euro terms and -6.6% in local terms. The US market, the largest in the world, was up 5.9%ineuro terms and 6.5%in local terms.

Fixed Income & FX

The US 10-year yield finished at 2.18% last week. The German equivalent finished at 0.39%. The Irish 10-year bond yield finished at 0.98%to remain in positive territory. The Euro/US Dollar exchange rate finished at 1.11, whilst Euro/GBP finished at 0.84.

Commodities

Oil finished the week at $109per barrel and is up 48.8% year-to-date in euro terms.  Gold finished the week at $1925 per troy ounce and is up 8.2% year-to date in euro terms. Copper finished the week at $10,327 per tonne.

The week ahead

Wednesday 23rd March 

US EIA crude oil inventory report to be released.

Thursday 24th March

Eurozone, UK and US flash PMI data.

Friday 18th March

Jobless claims for February, expected to fall to 207K.