Hello, I’m Greg Curvall, Senior Portfolio Manager with Fifth Third Bank.
Major U.S. equity indices were lower last week, following three consecutive weeks of gains. Treasuries were weaker with the yield on the 10-year finishing the week up about 30 basis points, currently at 2.70 percent. Both the dollar and gold finished the week stronger, and WTI crude was down about a percent.
Aside from new and chilling reports coming out of Ukraine, the biggest market moving news came from the Fed, when they released their March FOMC minutes. The report outlined a $95 billion/month runoff of the Fed’s balance sheet. The minutes also showed a willingness among some members for one or more 50 basis point rate hikes this year. Though these moves have been largely anticipated, they firmed the market’s perception of a hawkish turn by the Fed.
Two other sources of concern are attracting headlines, persistent inflation and an inverted yield curve. The World Food Price Index surged at the fastest pace ever last month, now up 50% since mid-2020. The yield spread between the U.S. 10 and 2-year Treasury started last week in negative territory, typically a bearish signal for the economy, only to finish the week positive.
There was also a lot of focus on the human toll in Ukraine last week, with the international community coming to grips with evidence of atrocities in areas recently evacuated by Russian troops, as well as continued bloodshed (such as Friday's Russian missile strike on a railway station). While fighting in some regions has wound down, Western analysts expect Russia is regrouping for a focused campaign in eastern Ukraine.
Meanwhile, the US and its allies continued to apply pressure through sanctions. The U.S. Treasury moved to halt dollar-denominated payments from US-based Russian accounts, which may push Russia closer to a default. Multiple EU countries expelled Russian diplomats, and the group approved a new round of sanctions banning the import of Russian coal-though members are not yet prepared to cut themselves off from Russian oil and gas.
The economic calendar in the week ahead has some interesting releases, the most notable of which will be the March Consumer Price Index report, which is expected to remain at a four-decade high. Also on Tuesday, we get Small Business Optimism and Average Hourly Earnings. On Thursday we get Retail Sales and University of Michigan Sentiment, and we finish up on Friday with Industrial Production and Capacity Utilization. Also worth noting, earnings season kicks off this week as big Wall Street Banks are due to report how they fared over the volatile first quarter and Ukraine crisis.
As always, will be watching and reporting back to you next week. Thank you.
