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Market Watch: April 22, 2022

Apr 22, 2022 | 10:54 AM

Big Picture

U.S. Treasury Yields Keep Climbing as Fed Contemplates Aggressive Hikes

U.S. stocks registered minimal losses on Monday, while 10-year U.S. Treasurys continued their climb after the long holiday weekend, hitting 2.861 per cent. In Canada, the TSX ended with a slight 23-point gain, buoyed by rallying energy stocks, as natural gas prices in the U.S. hit a 13-year high.

Major U.S. stock indexes had their best day in a month on Tuesday as investors parsed the latest round of earnings reports and how inflation is impacting corporate profits. The Dow was up 500 points, the S&P 500 climbed 70 points, while the tech-heavy Nasdaq jumped 287 points. In bond markets, 10-year U.S. Treasury yields rose yet again to 2.911 per cent. The TSX also ended in positive territory, adding 140 points, although declining energy shares weighed on the index.

Statistics Canada reported Wednesday that the country’s inflation rate climbed to 6.7 per cent in March, a full percentage point higher than February’s previous 30-year high. The loonie surged above the US80-cent mark after the inflation report, up about three-quarters of a cent on the day. Meanwhile, in the U.S., data last week indicated that the CPI rose to 8.5 per cent in March year-over-year, the fastest annual pace since December 1981. It was a mixed day for U.S. markets on Wednesday. The Dow climbed 249 points, the S&P 500 was essentially flat, while the Nasdaq dropped 166 points, weighed down by tumbling Netflix shares, which plunged 35 per cent after the streaming giant reported a drop in subscribers. In Canada, the TSX shed 20 points.

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After being up for much of the day, U.S. stocks fell late Thursday, as a selloff in government bonds accelerated, with 10-year U.S. Treasurys reaching 2.939 per cent Thursday, up nearly 100 basis points from Wednesday. Much of the selling pressure came in response to Fed Chair Jerome Powell’s remarks that a 50-basis-point hike will be “on the table” when the Fed meets in early May. Powell’s comments were made Thursday afternoon, speaking during a meeting of the International Monetary Fund. By Thursday’s close, the Nasdaq had dropped 278 points, while the Dow and S&P 500 lost 368 and 66, respectively. In Canada, the TSX tumbled 347 points, thanks to declining shares in the energy and materials sectors. Dow Gains Ground; Nasdaq, TSX Decline

For the four trading days covered in this report, the Dow gained 342 points to close at 34,793, the S&P 500 added 2 points to settle at 4,394, while the tech-heavy Nasdaq sunk 176 points to close at 13,175. In Canada, the TSX lost 205 points to end at 21,650.

Strategy

President Xi Jinping defended China’s lockdown approach to fighting the pandemic

President Xi Jinping defended China’s lockdown approach to fighting the pandemic, even though he reassured the world that the country was still committed to opening its economy. China is seeking to support economic growth while implementing lockdown measures to contain the country’s worst COVID-19 outbreaks since the early days of the pandemic. President Xi Jinping stated that the fundamentals of the Chinese economy, its strong resilience, enormous potential, vast room for maneuver, and long-term sustainability remain unchanged. However, March data showed the biggest contraction in retail sales and a surge in unemployment to the highest since early 2020. Many economists have cut their full-year growth forecasts to well below the governments’ official growth target of 5.5 per cent. That adds social risks to the political pressures confronting Xi as he prepares for a twice-a-decade leadership reshuffle later this year expected to give him a precedent-breaking third term as Communist Party leader.

Meanwhile, China has faced criticism from the country’s largest export markets, the U.S. and European Union, for refusing to condemn Russia’s invasion of Ukraine. Although Xi made no direct references to Russia, Ukraine or the U.S., he did take several veiled swipes at Washington’s efforts to use its alliance network and financial influence to force Moscow to end the conflict.

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