By Scotia Wealth Management - The Zukiwsky Group

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Market Watch: March 11, 2022

Mar 11, 2022 | 12:43 PM

Big Picture

Markets Volatile as War in Ukraine Escalates, U.S. Inflation Climbs Higher

The Dow entered correction territory on Monday, dropping nearly 800 points, as skyrocketing oil prices led to mounting concerns over a possible stagflation scenario. Monday’s steep selloff also sent the Nasdaq into bear market territory, as the tech-heavy index dropped 482 points. In Canada, the TSX lost roughly 100 points, as rallying energy and materials stocks cushioned the blow. Perhaps the biggest headline of Monday was surging Brent crude prices, which briefly broke above $130 a barrel, before settling at $123, while gold rose 1.5% to $1,994 an ounce, as investors flocked to the safe-haven asset.

North American markets yo-yoed on Tuesday in a wild session, eventually closing with mild losses, as investors stayed focused on news from the war in Ukraine. Oil and gold prices continued to climb as Russia increased its shelling of Ukrainian cities, resulting in mounting civilian casualties. The biggest price jump, however, came in the nickel market, which saw an unprecedented 47% one-day price surge in the metal, forcing the London Metal exchange to suspend trading in nickel.

U.S. markets surged on Wednesday, breaking a four-session losing streak, as tech and financial names headed higher. One clear reason for Wednesday’s gains was crude prices, which fell 13% a barrel to $111, the largest single-day percentage decline since April 2020. By Wednesday’s close, the Dow jumped 653 points, the S&P 500 surged 107, while the Nasdaq rose 500 points. In Canada, falling oil prices muted gains for the TSX, which added 261 points.

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It was another volatile day of trading on Wall Street Thursday, with all three major U.S. indexes registering modest losses. In Canada, the TSX bucked the trend, adding 88 points on energy and materials sector strength. While the war in Ukraine continues to be a major concern for investors, the latest U.S. inflation figures offered little solace. According to the U.S. Labor Department, U.S. inflation climbed to a 7.9% annual rate in February, another four-decade high, as skyrocketing energy and commodity prices related to the Russian invasion pushed costs even higher. Finally, perhaps the lone bright spot of the day was Brent crude futures, which declined 1.6% to $109 a barrel.

TSX Climbs on Energy Strength, U.S. Indexes Lose Ground

For the four trading days covered in this report, the Dow lost 441 points to close at 33,174, the S&P 500 dropped 70 points to settle at 4,259, while the tech-heavy Nasdaq sunk 183 points to close at 13,130. In Canada, the TSX gained 179 points to end at 21,581.

Strategy

U.S. consumer price gains accelerated in February as first-time unemployment claims rose

U.S. consumer price gains accelerated in February to a new 40-year high on the back of rising gasoline, food, and housing costs. The consumer price index jumped 7.9% from a year earlier, matching consensus estimates and following on January’s 7.5% gain reading. Excluding volatile food and energy components, core prices increased 6.4% from a year ago. The data illustrate the extent to which inflation was tightening its grip on the economy before Russia’s war brought about a spike in commodities, including the highest retail gasoline price on record. It was generally expected that February would represent the peak for annual inflation, but the effects of the conflict likely mean even higher inflation prints in the coming months. To combat building price pressures, the Federal Reserve is set to raise interest rates next week for the first time since 2018. At the same time, the geopolitical situation adds uncertainty to the central bank’s rate hiking cycle over the coming year. Fed officials could take a more hawkish stance in the months ahead if energy price shocks lead to higher and more persistent inflation, but they also may take a more cautious approach if sinking consumer sentiment and declining real wages begin to weigh on growth.

The number of Americans filing for first-time unemployment claims rose to 227,000 (217,000 expected) from the previous week’s figure of 216,000 while continuing claims increased to 1.494 million (1.450 million expected) from 1.469 million, according to data released by the Department of Labor. The four-week moving average of continuing claims fell to 1.507 million, a decrease of 31,250 from the previous week’s revised average, dipping to its lowest point since March 1970. Claims have steadily declined since last year and have held relatively steady over the past few months with minor spikes amid virus flareups and the ensuing restrictions. Still, labour shortages continue to persist as the most recent JOLTS survey showed that claims remain well north of 11 million and the quits rate remains elevated. While the demand for workers has pushed up wages, soaring prices have eaten away into gains as real average weekly earnings fell 0.5% MoM in February (-2.3% YoY) and real average hourly earnings declined 0.8% MoM (-2.6% YoY).

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