Written by Cormac Nevin.

Last week was a busy one with regards to both news flow and market movements. The MSCI World Index of developed market equities was down -1.2% for the week in GBP terms, compounding a -2.0% return for the month to date and -6.3% for the year to date. This was led (once again) by a strong sell-off in US tech and growth names, with the NASDAQ 100 down -3.5% last week capping a -13.0% year to date loss. Markets are having to adjust to a higher inflation and higher interest rate environment, coupled with geopolitical risks around Ukraine and Taiwan. Fixed Income provided little buoyancy for investors as interest rates continued to rise, in particular the Sterling credit & gilt market has been a very poor performer.

The standout market event of last week was the release of Consumer Price Index data in the US on Thursday which illustrated that once again prices were rising faster than expected. This led to comments from Federal Reserve members implying that monetary policy needs to be tightened more rapidly, even potentially involving a rate rise of 1% by July. Markets are now concerned that developed market central banks, particularly those in the US and UK, are now meaningfully “behind the curve” and that the persistency of inflation has taken them by surprise.

Higher inflation readings are being sustained by ongoing global supply chain issues as economies in the Far East are disrupted by the spread of the omicron variant. Tight labour markets also increase the risk of economies entering into a wage-price spiral, despite the handsomely remunerated Governor of the Bank of England suggesting workers hold off on wage increase demands.  The machinations of Mr Putin are keeping energy prices high and the market jittery, while romantics out there will also be sad to hear that the price of cacao continues to trade close to its five-year high.

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All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 14th February 2022.
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