Every Friday, Brian Jacobsen provides perspective on key events and topics of the current week and his thoughts about what the week ahead may hold. Here’s his report for the week of January 8–14, 2022.

The week that was

  • December inflation numbers were in line with expectations—not necessarily great but not bad for markets. Investors were expecting that the year-over-year increase in consumer prices would be 7.0%, the highest since 1982. The month-over-month inflation number did moderate from +0.8% in November to “only” +0.5% in December.
    • Shelter, used cars, food, and clothing price increases were the biggest contributors to inflation. Energy prices are high, but they did fall 0.4% in December.
    • If it’s any solace, at least there are indicators that the supply-chain-driven price pressures are beginning to fade. Shipping costs are coming off the boil. Supplier delivery times are getting worse at a slower pace than previously. And commodity prices may be high, but they aren’t necessarily continuing their rapid ascent.
    • The risk is that inflation expectations get ingrained and inflation stays stubbornly high. The supply-driven part of inflation is fading, but the psychological part might linger.
    • The Federal Reserve (Fed) has pivoted to being less dovish, and that could help tap expectations of inflation lower. If we see month-over-month inflation prints decline quickly, we could see another Powell Pivot where, instead of talking about being hawkish, he talks about being patient or measured with removing accommodation.

 Economics:

  • Fed Vice Chair Richard Clarida announced he will resign, effective January 14. It was widely known that he would be leaving since his term was set to expire January 31, 2022. It was reported that President Biden will nominate Sarah Bloom Raskin to be a Fed Board governor in charge of bank regulation. Biden will reportedly nominate economists Lisa Cook and Philip Jefferson to fill two vacant seats on the Board.
  • Fed Chair Powell’s confirmation hearing was on Tuesday, January 11. He didn’t break any new ground in his prepared remarks or during the question and answer period. He anticipates the Fed’s balance sheet will start to shrink later in 2022.
  • There were a number of Fed speakers this past week. The gist is that many seem to support a March hike if economic conditions hold and they support a balance sheet run-off starting sometime later in 2022.
  • The Supreme Court blocked the Occupational Safety and Health Administration’s (OSHA) broad mandate that all employers with 100 employees or more must require workers to get vaccinated or test for COVID-19 regularly. The Supreme Court said OSHA’s rule exceeded its authority. It allowed a rule to stand requiring workers at medical providers receiving federal funds to get vaccinated.
  • The Bank of Korea hiked its target rate to 1.25%, the level it was at before the pandemic. The central bank said inflation was likely to stay over 3% for a “considerable time,” which necessitated a rate hike.
  • U.S. retail sales fell 1.9% month over month in December as consumers did their Christmas shopping earlier in the year out of fear of stock-outs or shipping delays. For all of 2021, retail sales increased a massive 19% compared with 2020.
  • U.S. industrial production fell 0.1% month over month in December. Manufacturing output fell 0.3% month over month.

Politics:

  • North Korea tested two more missiles this past week.
  • Talks between the U.S. and Russia didn’t seem to make any major breakthroughs. Russia has been amassing troops at the border with Ukraine but claims it has no intention of invading. Russia is demanding that the North Atlantic Treaty Organization stop expanding to countries close to Russia’s border.

The week to come

  • Earnings reporting season begins. At the index level, S&P 500 companies are projected to have earnings per share increase 21.61% year over year, according to FactSet. Sales are projected to rise 12.64% year over year.
  • On Wednesday, we get U.S. housing starts for December. Thursday we get existing home sales data for December.
  • The Bank of Japan has a policy meeting on Monday. It will be interesting to hear the group’s thoughts on the weakness of the yen, which has been flagged as a source of imported inflation.
  • The European Central Bank (ECB) has a policy meeting on Thursday. It’s planning on ending its pandemic asset purchases and focusing on its “normal” asset purchases. It’s widely believed that the ECB is well behind the Fed and the Bank of England in terms of removing monetary accommodation.

Thanks for reading, stay informed!

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

PAR-0122-00636

Leave a Reply

Your email address will not be published. Required fields are marked *

You might also like: