Week in a Glance: US Inflation and Powell, Omicron, Reporting

17 ene 2022

The past week turned out to be quite eventful for significant events for the US stock market. And most importantly, it is difficult to name any positive, at least for risky assets.

Inflation in the US continued to break records. The consumer sector, with its 7%, was noted at the maximum levels since 1982, while the production sector remained at the historical highs of 10%. That is, by itself, she does not think to resolve.

So it's not surprising that Powell, speaking in Congress, was quite aggressive in his rhetoric and said that the economy is ready for monetary tightening. In 2022, we should expect not only the complete curtailment of the quantitative easing program by March, but also 3-4 rate hikes, as well as a reduction in the Fed's balance sheet. That is, the Central Bank uncovers all guns.

Markets eventually revised their expectations on the timing of the start of the increase in stakes. If at the start of the week the consensus was May 2022, then by the middle of the week, with a probability of 90%, the rate increase is expected in March.

The pandemic continues to rampage and set new records. The number of Covid-19 patients in US hospitals has surpassed last winter's high, with the US reporting 1.5 million and China locking down 5 million people living in the city of Anyang. In general, China, with its zero tolerance policy, greatly exacerbates the already difficult situation in global logistics.

Another negative of the past is the fact that retail sales in the US fell by 1.9% in December (much worse than the 0.1% decline expected by experts). One of the main reasons is rising inflation. In general, while everything is developing exactly as we warned earlier.

The more interesting it will be to watch the seasonal reporting in the US, which last week moved into an active phase. By the way, it was on him that buyers relied. But the financial statements of banks, which traditionally open the reporting season, disappointed. That is, the reporting was generally not bad, but investors were disappointed. If in the case of Citigroup they can be understood (profit decreased by 26%), then in the situation with JPMorgan Chase (income and profit growth exceeded experts' forecasts), it is less clear. In general, we have what we warned about. Expectations are too high and any deviation from them will provoke sharp sales.

So, given the results of last week, this week in the US stock market, we would be looking for opportunities to sell.