Waking Up to Reality
Global stocks edged higher at the start of the new week when investors came to terms with the US Treasury’s economists’ view that the pressure of inflation should reduce in 2022 as a result of reduced demand on goods which will ease supply gridlocks and recede the COVID pandemic.
Alongside an early rise in European shares, which aided the stability of investors’ sentiments after a stretch of volatile trading sessions, Wall Street also closed on the high side on Monday.
The Assistant Secretary for Economic Policy, Ben Harris, said in a statement that he thinks energy prices will be stable throughout the year, but political tensions could be responsible for pushing the price higher. He said this while revealing the Treasury’s quarterly borrowing estimations.
Yet, many investors claimed that the backdrop for equity is still not certain when other central banks are beginning to tighten their policies. The Bank of England, for instance, is expected to increase interest rates on Thursday, making it the second time in less than two months. Meanwhile, further increase in oil prices simultaneously increases inflation.
The European STOXX 600 index increased by 0.72%. The Chinese New Year holidays did not allow for wide trading situations in the Asian market. The MSCI’s widest index for Asian-Pacific shares except for Japan closed at 1.11% higher.
In the US, the S&P 500 rose by 1.89%, while the Dow Jones Industrial Average (DJIA) gained up 1.18%. Nasdaq had an addition of 3.41%, but it suffered the effect of selling, and it was down a 14% score from its unprecedented peak in 2021.
Although the MSCI global index was high on Monday, it was still down 6.2% in January, making it the poorest beginning of the year since 2016. Before it had the blissful rebound on Friday, the MSCI index was going to have its poorest January since 2008 when there was a global financial crisis.
The Investment Director of Capital Group, Carpenzano Flavio, said this isn’t the regular selloff having an effect on low-quality less-performing companies. He emphasized that the current selloff happening is an act of different central banks at this time when growth is essential and not pushed by basics.
Carpenzano used the analogy of a child who got everything he wanted, including money for free. He said such a child would not care much about quality, but with maturity comes discipline and the need for a valuation.
The political standoff in Eastern Europe is also a source of concern as there are fears that the gas supply to Western Europe may be cut off in the event of a Russian invasion of Ukraine.