The Long and Short of it, week ending 11 Mar 2022
Posted:Another turbulent week for U.S. stock markets as soaring commodity prices – a direct consequence of Russia’sinvasion of Ukraine and the resulting sanctions on Russia – increased fears of stagflation and markedly slower economic growth. All three major U.S. stock indexes fell sharply Monday with the Nasdaq Composite Indexshedding over 3.5% and the S&P 500 Index falling nearly 3%. Monday’s move lower was precipitated primarilyby ever-higher-moving oil prices. U.S. stock markets rebounded strongly Wednesday, again predicated by oil prices (this time falling prices), with reports the UAE and Iraq would be willing to pump more oil to help offset the White House’s decision to ban Russian oil and gas imports. WTI and Brent crude oil prices fell between 12% and 13% Wednesday. Nonetheless, stock prices resumed their move lower Thursday and Friday directed by a 40-year high CPI release Thursday (increasing expectations of a more aggressive Fed), no let-up in Russia’s Ukraine Invasion and continued stagflation concerns. 10-year U.S. Treasury rates rose 26bps over the week entirely driven by increasing inflation expectations. The 10-year breakeven inflation rate closed Friday at 2.98%, up 27bps from the previous Friday while 10-year real yields remained near recent lows (reflecting flightto-quality demand) of -0.98%. For the week, the S&P 500 fell 2.9% to 4,204.31, the Nasdaq Composite Index dropped 3.5% to 12,843.81, the Dow Jones Industrial Average decreased 2.0% to 32,943.33, the 10-year U.S. Treasury rate increased 26bp to 2.00% and the U.S. dollar (as measured by the ICE U.S. Dollar index - DXY) strengthened 0.5%.
European stock markets fared much better than U.S. stock markets last week but were nonetheless plagued by continued high volatility resulting from Russia’s invasion of Ukraine. Rising oil prices, given impetus by Britain’s and the U.S.’s ban of Russian oil imports, moved the FTSE 100 and STOXX 600 Index’s lower through Tuesday with the STOXX 600 Index falling a little over 1.5% and the FTSE 100 Index decreasing about 1/3 percent. Though rising oil and base metal prices increased the spectre of stagflation, it also increased oil and mining company share prices buoying, in particular, the FTSE 100 Index. Wednesday’s steep decline in oil prices (Brent oil prices fell 13%) drove the STOXX 600 Index almost 5% higher – it’s largest 1-day gain in 2 years – while moving the FTSE 100 Index 3 ¼ percent higher. Markets moved lower Thursday as the ECB, though leaving rates unchanged, announced it would likely end its bond buyback program in March and consider raising rates thereafter and as the U.S. CPI release Thursday reached a 4-decade high. Friday’s much stronger-than-expected UK GDP number seemed to support stock prices despite increasing expectations for further BoE rate increases. The 10-year UK government rate behaved similarly to 10-year U.S. Treasury rates, increasing 28bps over the week while the 10-year Bund rate climbed 37bps to push rate levels in positive territory once again (the 10-year Bund rate finished the week at 0.27%). At week’s end, The FTSE 100 Index increased 2.4% to 7,155,64, the STOXX 600 Index rose 2.2% to 431.17, the 10-year UK government rate increased 28bps to 1.49% and the British pound and the Euro weakened 1.4% and 0.2%, respectively, both with respect to the U.S. dollar.
Top performing ETPs over the week
| . | 3x Long ETPs | 3x Short ETPs | ||
|---|---|---|---|---|
| UK | +3x Glencore (3LGL) | +34.6 % | -3x Vodafone (3SVO) | +8.3% |
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Past performance is not a reliable indicator of future results. The value of an investment may go down as well as up and can result in losses, up to and including a total loss of the amount initially invested. All ETP performance figures are inclusive of fees and other adjustments. Returns measured in currency of underlying stock.
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The Long and Short of it, week ending 11 Mar 2022
