At the close of business on Friday, US equities were lower while global equities were little changed on the week in choppy trading. The yield on the US 10-year note continued to rise this week, reaching 2.03% from 1.93% a week ago. The price of a barrel of West Texas Intermediate crude oil added about $1 on the week, putting it at $90.95, while volatility, as measured by the Cboe Volatility Index (VIX), fell to 23.5 from 24.7.

MACRO NEWS

Ukraine talks stalled; Russian troop buildup continues
Nine hours of talks in Berlin between Russia and Ukraine, negotiations between Russian President Vladimir Putin and the French President, and a meeting between the Russian and British foreign ministers together made little progress at ending the crisis in Ukraine as Russia continued to conduct military exercises near the country’s land and sea borders and massed additional troops. We believe negotiations will continue as Russia’s exports of natural gas and oil to Europe are a significant part of the revenue needed to sustain their economy. Russia’s show of force, we believe, is a bullying tactic as Putin tries to stop Ukraine from becoming part of NATO and the ultimate threat of missiles on Ukraine soil pointed at Russia. We will continue to monitor this developing story.

CANADIAN ECONOMIC NEWS

A protest against COVID restrictions by Canadian truckers is disrupting North American supply chains, particularly in the auto industry. Protesters are blocking a key bridge between Detroit and Windsor, Ontario, halting parts shipments in both directions when a semiconductor shortage has already slowed auto production. Rising prices for new and used vehicles have been a key contributor to the surge in inflation.

US ECONOMIC NEWS

Earnings News

With about 72% of the constituents of the S&P 500 Index having reported for Q4 2021, blended earnings per share show that earnings growth is running at 30.3% while sales rose about 15.3% compared with the same quarter a year ago. In conversations with fund management teams this past week, these are the key takeaways:

• Earning expansion is expected
• The US has the strongest consumer in 30 years
• The housing market in the US is robust’
• The banking system in the US is recapitalised and sound, and GDP is running above trend
• Rate hike anticipation builds; US inflation continues surge
• US consumer prices rose 7.5% in January compared with a year ago, the biggest jump in 40 years

We continue to believe that inflation is transitory. However, at this point, there are no visible signs of an inflation slowdown on the horizon, so the markets have begun to price in additional US rate hikes. This once again caused nervous investors to sell equities, and we were told on our calls this week that your fund managers are seeing many companies they want to own in the portfolio attractively priced and they have been active buyers.

European Economic News

With markets now pricing in 50 basis points of tightening by the European Central Bank before year-end, the ECB president pushed back against the idea of rushing to hike rates, saying policy will be tightened slowly. Acting too hastily would endanger Europe’s economic recovery. The president’s comments had a positive impact on European equities last week.

JAPAN, CHINA and EMERGING MARKETS ECONOMIC NEWS

Study finds China did not live up to deal with the US
A report released this week by the Peterson Institute for International Economics found China did not fulfill its 2020 commitment to increase imports of certain US goods and services by $200 billion in 2020 and 2021 as part of the phase-one trade agreement with the US and in fact did not increase imports from the US at all. According to the report, China bought only 57% of the US exports it had committed to purchase under the agreement. That’s less than China purchased from the US before the trade war started.

One reason that emerging markets are looking attractive is that while developed market central banks are in the early stages of interest rate increases, some emerging market central banks may be closer to the end of their cycles, having moved early and aggressively in 2021. China has already started reducing interest rates. Russia, Brazil, and Chile may be nearing a peak in rates and may start decreasing interest rates, which will provide fuel for their equity markets.