US Treasury yields backed up sharply this week as investors priced in further rate hikes by the Federal Reserve in response to rising inflation, with the consumer price index having recorded a 7% rise last year. This led to a further sell-off in growth and technology stocks, with the latter having fallen close to 12% since their peak last November. Many of the poster child beneficiaries of the pandemic have experienced some of the heaviest falls, with Netflix, the online streaming television service having fallen over 25% since its high. Peloton, the manufacturer of exercise bikes and online cycling classes has dropped over 30% year to date and a massive 85% since its all-time high in January of last year. The weakness in share prices has been more broadly spread this week, not helped by results from Goldman Sachs which highlighted a huge increase in expenses, rising by 33% over the year, largely due to higher wage demands. However, the investment bank still achieved a net profit of the year of $21.2bn, more than double the level achieved in 2020 and its highest on record.
On Monday, China’s National Bureau of Statistics revealed that the Chinese economy had expanded by 4% year on year in the fourth quarter, its slowest rate of growth for eighteen months, but ahead of forecasts. On the same day, the People’s Bank of China cut rate interest rates on one year lending facilities to 2.85%, whilst on Thursday, the mortgage lending rate was lowered for the first time in nearly two years. The five-year prime rate was lowered to 4.6% and the one-year rate cut to 3.7%. This reminded investors that monetary policy across the globe could be increasingly divergent this year due to contrasting rates of growth and inflation.
As of 12pm London time on Friday, US equities fell 3.9% over the week, whilst the US technology sector lost 5.0%. European and UK stocks, less highly valued and with a greater exposure to economically sensitive sectors fell 1.1% and 0.6% respectively. Japanese equities fell 2.6%, although the Yen rallied by over 1% versus most major currencies, cushioning the fall for overseas investors. Australian equities fell 3.0%, whilst emerging markets only lost 0.1%. Emerging markets were supported by Hong Kong stocks which rose 2.4% on the back of Chinese monetary easing, and Brazil, which increased by 2.0%, boosted by strong oil prices.
10-year US Treasury yields, which move inversely to price, rose to 1.9%, before dropping back to 1.78% by Friday, benefitting from risk aversion in stock markets due to inflationary concerns, and an increasingly belligerent Russia in respect of a build up of armed forces on the Ukrainian border. German yields briefly rose into positive territory for the first time in over two years, touching 0.02%, before settling back down to -0.06%. UK gilts touched 1.28% mid-week, now trading back down at 1.19%.
Gold rose 1.0%, currently priced at $1,837 an ounce. Whilst industrial metals also rose, with copper trading up 2% to back over $10,000 and iron ore responding positively to Chinese monetary easing, rising over 8%. Brent crude traded above $89 a barrel for the first time in over seven years, before falling back down to $87.2 on Friday
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