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Equities lower as rate expectations move higher – Weekly Investment Review 14 February2022

Stock markets finished the week lower as US inflation hit a 40 year high.
Thursday’s Labor Department release showed that prices were up 7.5% in
the year to the end of January. Core inflation, which excludes energy and
food, rose 6.0% which was the highest rate since 1982. Both readings were
above the consensus forecast. The market now fully expects to see an
interest rate hike in the US at the Fed’s mid-March meeting, with some
commentators now predicting a 0.5% move. This would be the first half
percentage move higher in over 20 years. Comments from Fed Committee
member James Bullard did little to calm markets as he forewarned of a
number of rate hikes by the middle of the year. Bonds also saw prices fall on
the news. The US 10 year treasury yield is above 2% for the first time since
2019, whilst the 2 year yield moved to 1.64% in its biggest price fall (yields
and prices move inversely) since 2009. Eurozone government yields
followed suite with the ten year German Bund yield finishing the week
comfortably in positive territory at above 0.20%.
Earnings continued to roll in last week, with 360 of the S&P500 having now
reported. According to Bloomberg, two thirds of companies have beaten
revenue forecasts and three quarters have beaten earnings expectations. In
China, stocks rose on the expectation that monetary conditions would not
become overly tight and also on the perception that the regulatory
crackdown was subsiding. Oil remained on an upward trajectory as tensions
between Russia and Ukraine continue to be elevated. Finally, COVID
restrictions continue to be scaled back throughout the developed world,
including in the UK, Denmark, and a number of US states