Wall Street higher amidst a flood of bad news

The three main indices notched a second straight week of gains. The S&P 500 rose +1.79% (down -4.68% Year-To-Date). The Dow Jones edged up +0.30% (down -4.06% YTD) while the Nasdaq jumped +1.98% (down -9.43% YTD). Yet Treasury yields rose sharply after hawkish comments from the Federal Reserve, as inflation continues to accelerate. Jerome Powell said the central bank would be prepared to hike interest rates by more than 25 basis points at upcoming meetings. The 10-year Treasury yield closed at +2.49% (+34 basis points week-over-week, almost +100bps since the beginning of the year). Against this backdrop of rising rates, U.S. data shows that the housing market is cooling. Pending home sales fell 4.1% last month, posting their fourth drop in a row. Furthermore, the University of Michigan Consumer Sentiment index came in at 59.4 in March (11-year low), compared with the flash estimate (59.7) released earlier in the month. Such a level paints a gloomy outlook for consumption in the coming months due to red-hot inflation.

European and Asian markets closed mixed. The MSCI EMU slid (-1.01% over the week, -10.35% YTD) as the conflict in Ukraine shows no sign of abating. No diplomatic solution seems to loom on the horizon. Joe Biden called Putin a “butcher” after meeting with refugees in Poland on Saturday. By contrast, the FTSE was up +1.06% (+1.34% YTD). In China, the Shanghai Composite extended its losing streak into a fifth week (-1.19%, -11.75% YTD). In Japan, the Nikkei gained +4.93% (-2.23% YTD).

Energy stocks resume rally  

Oil prices surged again (WTI crude up +8.79% at $113.90 a barrel) after U.S. government data showed weekly consumption far beyond market estimates. As a result, energy was the best performer of the week (+7.42%) among the S&P sectors. 

Materials (+4.10%) and utilities (+3.45%) followed behind. Information technology (+2.33%) was pushed higher by Apple (+6.55%) as one of its biggest suppliers, Foxconn, said that its plants in Shenzhen, China, have “essentially resumed normal work order and production operations”, after an uptick in Covid cases in this area had caused it to pause production a week ago. Communication services fared well (+2.15%), helped by Google stocks (+3.96%). Health care was the only sector in the red (-0.23%).

Treasury yields bounce again

U.S. Treasury yields rose to their highest level in almost three years. The yield on German 10-year government bonds followed suit (up 22 basis points from +0.37% to +0.59%). Investors bet on ECB rate hikes while remaining concerned about the developments of the Russian invasion in Ukraine. Similarly, the yield on the French 10-year OAT surged above 1%, rebounding to levels not seen since February 2018.

The riskiest bonds did not weather the storm. Investment grade corporate bond prices were down -0.69% in Europe and -1.46% in the U.S. High-yield bonds fell -0.77% in the U.S. but gained +0.26% in Europe. Emerging debt treaded water (-0.06%). The greenback edged higher (dollar index up +0.58%). Gold bounced back (+1.91%, spot price at $1,958.29/Oz) as the G7 announced that gold transactions involving Russia's central bank remain subject to sanctions.

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