Equities fall further on interest rate and growth fears – Weekly Investment Review 24 January 2022

Equities moved lower last week as fears over the potential for tighter US
monetary policy and its subsequent impact on economic growth dominated
the narrative. The tech-heavy NASDAQ saw its biggest drop since the
pandemic whilst Netflix saw a fall of over 20% on Friday following its
earnings report – erasing all its pandemic price gains. The S&P 500 also fell
below its 200-day moving average; a key technical level which can induce
further selling action. There is an increased expectation of a Federal Reserve
interest rate hike in March, and their meeting on Wednesday will be closely
watched. However, despite this expectation, US treasuries saw yields move
lower (and prices higher) throughout the course of the week as investors
sought safe haven assets.
It was a quiet week for US economic data, although there was some mixed
data on the housing front as a slight fall in the Housing Market Index fall was
offset by a 1.7% rise in housing starts during December 2021. The Chinese
economy has seen a challenging 12 months in newsflow, but Q4 2021 GDP
surprised to the upside and helped lift overall GDP growth for the calendar
year to 8.1%. A growth rate well above the average from recent years. In the
UK retail sales disappointed as the December year-on-year growth number
came in at -0.9%, versus an estimate of 3.7%.
Within Europe, stocks follows global indexes lower whilst the key German 10
year bund yield briefly moved into positive territory for the first time in almost
three years. Sovereign bonds ultimately gained in value as ECB President
Lagarde sought to dispel expectations of an interest rate rise in the eurozone
this year. Simmering tensions in Ukraine also contributed to a more cautious
stance on the continent. Within commodities narratives around inflation,
economic activity, and geopolitical concerns all combined to send oil to a
seven year high.