Hello, this is Claire Ellerhorst, Private Bank Investment Strategist at Fifth Third Bank with this week’s Economic Beat.
Major U.S. equity indices were lower again last week as geopolitical uncertainty continued to weigh on investor sentiment. The S&P 500 Index and Dow Jones Industrial Average each fell 1.2% in total return, while the tech-heavy Nasdaq 100 dropped 2.8% for the week. International equities dropped sharply, and the U.S. dollar strengthened versus major peers. The U.S. 10-year Treasury yield fell 23 basis points to end at 1.73%, as markets held a risk-off tone.
Headlines were dominated by Russia’s invasion of Ukraine, as escalations continued. The first two rounds of ceasefire negotiations between the nations were unsuccessful, with a third round of talks set to take place this week. Russian attacks intensified throughout the week as Ukrainian troops have been putting up stiff resistance. The United Nations reported that over 1.5 million people have fled Ukraine, the largest refugee event in Europe since World War II. The U.S., European Union and the U.K. are among those that have imposed severe sanctions on Russia and its wealthiest leaders to discourage continued attacks. The U.S. is reportedly working with European countries to develop a joint approach to any ban on Russian oil imports, while still ensuring adequate global supplies.
Commodities continued their record surge, with West Texas Intermediate crude oil gaining more than 26% last week. The move in commodities, and particularly in energy prices, is intensifying concerns about more persistent inflation pressures. Futures markets now suggest expectations for the Federal Reserve to raise rates by 25 basis points at least five times this year, down from more than six times expected before the Russian invasion of Ukraine. Federal Reserve officials suggested last week that they still intend to raise rates at their March meeting.
President Joe Biden spoke to the nation last Tuesday in his State of the Union address, during which he sought to rally Americans behind a political vision and a geopolitical foe. The president focused most of his remarks on rebuilding an economic agenda. He also gave full support to Ukraine, condemning Russia’s invasion.
On the economic calendar, the February employment report from the Bureau of Labor Statistics was strong, with nonfarm payrolls increasing by more than anticipated and the unemployment rate falling by more than expected to 3.8%. Average hourly earnings were flat month-over-month in February, easing concerns about a wage price spiral, while the labor force participation rate unexpectedly ticked higher. In other economic news, the Institute for Supply Management’s Manufacturing Purchasing Managers’ Index, or PMI, increased more than expected for February and remains well in expansionary territory. January construction spending and factory orders surprised to the upside and weekly jobless claims continued their decline.
In the week ahead, investors will continue to assess the implications of the war in Ukraine. The European Central Bank meets to set policy for the first time since the invasion and will likely downgrade their expectations for economic growth. The U.S. economic calendar is relatively light but will include February’s reading for the Consumer Price Index (CPI), an important inflation indicator. We’ll also get data on job openings, small business optimism and the trade balance. As always, we’ll be watching and reporting back to you. Thank you.
