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Market Watch: March 25

Mar 25, 2022 | 11:05 AM

Big Picture

Market Volatility Continues; Fed Signals More Hawkish Stance Against Inflation

Wall Street indexes closed lower on Monday after Fed Chair Jerome Powell indicated the central bank could take a more aggressive stance in its battle against inflation – leading some analysts to expect a 50-basis-point hike at the Fed’s next meeting. In response to Powell’s comments, yields on 10-year Treasurys broke above 2.31 per cent for the first time since May 2019, while the yield curve flattened further, a possible sign of an economic downturn. In Canada, the TSX bucked the trend, ending above 22,000 for the first time, as energy and materials stocks rallied.

U.S. stocks ended higher on Tuesday, led by the Nasdaq, as tech and growth names recovered from recent losses. The TSX, meanwhile, hit another record high, as Canadian tech rallied, led by Shopify. By Tuesday’s close, the Nasdaq jumped 270 points, the Dow and S&P 500 added 254 and 50, respectively, while the TSX climbed 65. In the U.S., government bonds continued to sell off, sending 10-year Treasurys to 2.37 per cent.

Positive momentum for equities faded on Wednesday, however, as all four major North American indexes surrendered ground. Growing concerns over rising oil prices, inflation and slowing global growth were top of mind as risk appetite once again waned. Brent crude futures gained more than 5 per cent Wednesday, settling at $121 a barrel. Brent crude prices have jumped more than 50 per cent this year, as supply concerns caused by Russia’s invasion of Ukraine continue.

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U.S. stocks mounted a comeback on Thursday, as oil prices retreated from recent highs. The Nasdaq gained nearly 2 per cent, while the S&P 500 and Dow added 1.4 per cent and 1 per cent, respectively. In Canada, the TSX was flat, while the loonie approached a two-month high against the greenback.

Finally, after being shuttered for roughly a month, the Russian stock market was open for limited trading on Thursday. To prevent a steep selloff, Russia’s central bank banned short selling and blocked foreign investors from unloading their shares. It’s not yet clear when or how foreign investors will be allowed to trade in the future.

Nasdaq, TSX and S&P 500 Gain Ground; Dow Off Slightly

For the four trading days covered in this report, the Dow gained 155 points to close at 34,708, the S&P 500 rose 59 points to settle at 4,520, while the tech-heavy Nasdaq added 353 points to close at 14,192. In Canada, the TSX declined 71 points to end at 21,938.

Strategy

Eurozone growth slows, prices rise, and sentiment slumps at a marked pace on the back of Russia’s invasion of Ukraine

The headline S&P Global Eurozone Composite PMI fell to 54.5 in March, down from 55.5 in February but ahead of consensus expectations of 53.9, indicating some loss of economic growth momentum but still strong economic output.

Many companies, notably in the service sector, continued to benefit from reopening tailwinds, but firms reported that the Ukraine war and accompanying sanctions had weakened demand, pushed up prices, and exacerbated existing supply chain issues.

Manufacturing output fell the most among survey categories, dropping to the lowest level since last October as new order growth was among the weakest since 2020. Export orders fell for the first time in 21 months and automakers also reported declining output.

Average input prices across both manufacturing and services rose at the fast rate since 1998, when data was first available. The increase in raw material and energy input costs, and the persistent grind higher in wages, drove a previously unseen increase in average selling prices for both goods and services companies.

Expectations for output in the coming year fell to the lowest level since November 2020 in the services sector and down even further in manufacturing to the lowest level since May 2020. Still, despite the drop in sentiment and weakening order book trend, firms continued to hire staff. While the headline result came in ahead of expectations, the underlying details depict a worsening trend for growth and stronger inflation in the months ahead.

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