As of the close of business last Friday, global equities rallied strongly on the week, following several weeks of losses in the aftermath of the launch of the Russian invasion of Ukraine. Amid concerns over the potential for widespread lockdowns in China as the Omicron variant spreads there, the price of a barrel of West Texas Intermediate crude oil fell to about $103 from $109.25 last Friday. The yield on the US 10-year note increased to 2.148 on Friday. Volatility, as measured by the Cboe Volatility Index (VIX), fell to 23.87 from 30.75 a week ago.
The Russia/Ukraine conflict remains front and center of everyone’s mind and we continue to watch developments closely. This year has begun as a volatile period for equity and bond investors. As most of the companies owned in your portfolio have exceeded earnings estimates, our advice has been to stay the course. We have seen increased dividend announcements almost daily, and mergers and acquisitions have been very strong. It was not surprising to see such a strong rally in the equity markets this past week, as companies with strong earnings have been significantly oversold. Active management and a focus on risk control are two important features of portfolio design that should not be overlooked.
We also believe that the probability of a recession is below average over the next twelve months and even though interest rates are increasing, they are increasing from ultra-low levels. Even with the current expectation for interest rate increases, we believe we will remain in a historically low-interest-rate environment. The current environment remains very positive for equities vs bonds in your portfolio.
CANADIAN ECONOMIC NEWS
The TSX index set a record highs Friday as Canadian producers and distributors of everything from grains, oil, and technology will benefit significantly from the conflict.
We expect our federal government to finally release its 2022 budget in early April. Over the last two years, our government has spent over 660 billion of taxpayer dollars to finance Canadians through the pandemic, and now we are eagerly awaiting to hear how they will collect the revenue necessary to repay this debt.
US ECONOMIC NEWS
Hawkish Fed determined to restore price stability
The Federal Reserve raised the policy set interest rate by 0.25% to 0.375%, its first change to interest rates since lowering the funds rate back in March 2020. While this is the first increase for the cycle, it won’t be the last. The US Federal Reserve indicated this week that it expects to hike rates at least 0.25% at each of the six meetings remaining in 2022.
EUROPEAN ECONOMIC NEWS
The Bank of England raised its key interest rate for the third time in as many meetings by 0.25%, to 0.75%.
Consumer prices in the euro zone rose 5.9% year over year in February, the highest level since the euro’s launch in 1999.
JAPAN, CHINA and EMERGING MARKETS ECONOMIC
China moves to limit economic impact of COVID curbs
China is taking steps to limit the impact of COVID-19 restrictions on the economy. That move, combined with efforts earlier in the week to reassure investors after a sharp decline in Chinese equities, sent local markets higher and prompted a rebound in oil prices, which had fallen on concerns over widening lockdowns in China. On Wednesday, China’s State Council pledged to support the economy and capital markets, setting off a huge rally in Chinese tech shares, which had been dragged down amid an ongoing regulatory crackdown. As part of the pledge, easier monetary policy from the People’s Bank of China is expected.
BRAND NEWS: Did you know…
… that for twenty-one years, our very own Carolyn Biega worked with cancer patients at Toronto’s Princess Margaret Hospital? Her experience was instrumental in shaping the incredible work she does for you, here at Dream Harbour.
How so? You can read about it in Carolyn’s brand-new bio. Just click here.
Thank you, Carolyn, for everything you do!