Monthly Market News February 2022 - Trends in the Markets

Alexandre Gauthy - Economist

In February, the conflict in Ukraine dominated economic and financial news. The markets lost ground after the Russian invasion.

Our expert, Alexandre Gauthy, analyzes the trends in the markets in February 2022.

Equity markets: equities take hits

Global equity markets remained on the defensive in February. Indexes in most regions (US, emerging markets, Europe) fell about 3% in euro terms, following a difficult January in which the US S&P 500 index suffered its biggest monthly decline since March 2020. In the US, the energy sector was the only one able to end the month on a positive note after rising nearly 19% in January. The stock prices of the major US technology companies fell (FAAMG+T), except for Amazon (+2.7%). The cloud (-9.3%), social media (Facebook -32.6%), investment banking (Morgan Stanley -11.5%), and automotive (Ford -13.5%, GM -11.4%, Tesla -7.1%) sectors performed the worst in the US market.

In February, markets were concerned about the Fed's more aggressive tone after inflation and wages came in higher than expected in January. Because of that high inflation, several members of the Fed remained supportive of a quick start to rate hikes. In addition, the Russian operation in Ukraine weakened global stock prices at the end of the month. The Russian offensive in Ukraine also caused turmoil in bond, commodity, and currency markets.

Equity markets	February	3 months	since 31/12	12 months
MSCI EMU NR	-5.2%	-4.0%	-8.5%	9.3%
MSCI EUROPE NR	-3.0%	-0.9%	-6.1%	15.4%
MSCI USA NR	-3.2%	-4.7%	-7.3%	23.1%
MSCI JAPAN NR	-1.3%	-4.2%	-5.0%	2.7%
MSCI EM. MARKETS NR	-3.2%	-2.8%	-3.6%	-3.5%
MSCI AC WORLD NR	-2.8%	-3.5%	-6.2%	16.5%
Performances in EUR dd. 28/02/2022				Source : Bloomberg

Bond markets: Long-term yields rise and then fall in the second half of the month

U.S. 10-year yields rose above the 2% mark in mid-February, but then fell back. Initially, the recalibration of monetary policy pushed up long-term interest rates. In the second half of the month, geopolitical tensions weighed on investor sentiment, causing rates to fall to 1.82% by the end of the month. All asset subclasses in the bond market posted negative results last month. The German 10-year interest rate rose back above 0% during the month. It reached a level of 0.33% in mid-February before losing ground again in the second half of the month. In other bond segments, corporate bonds of high creditworthiness recorded a negative return of 2.5% in February expressed in euro terms.

Government Bond Yield 10 yr	Current	February	3 months	Since 31/12
Belgium	0.55	0.20	0.55	0.36
France	0.61	0.18	0.59	0.41
Germany	0.14	0.12	0.48	0.31
Italy	1.71	0.41	0.74	0.53
Greece	2.53	0.64	0.74	0.53
Spain	1.12	0.37	0.72	0.55
United States	1.55	0.06	0.33	0.64
Japan	0.10	0.03	0.08	0.08
Evolution until 28/02/2022				Source : Bloomberg

Central banks: the ECB surprised at the beginning of the month

Jim Bullard, a voting member of the Fed, stated that it was appropriate for the Fed to raise its key interest rate by 0.50% in March to bring the short-term interest rate to 1% in July. The Bank of England raised its key interest rate by 0.25% in early February, bringing it to 0.50%. The ECB met in early February. While monetary policy in the Eurozone remained unchanged, Christine Lagarde came out of the corner somewhat surprisingly at the press conference following the European Central Bank meeting. Indeed, the ECB president refused to confirm her earlier statement that "it is very unlikely that the ECB will raise interest rates in 2022" (and which she had already made several times). However, she stressed that the principle of sequencing, i.e., ending net asset purchases before raising interest rates, was still in place. In its wake, the markets quickly anticipated two 0.25% interest rate hikes in the second half of the year. At the end of the month, these interest rate expectations were revised downwards due to the risks posed by the conflict in the East to the Eurozone economy.

Central Bank Rates	Current	Latest adjustment	Date
Fed funds	0.0-0.25%	-1.00%	mar. 2020
ECB deposit rate	-0.50%	-0.10%	Sept. 2019
Situation on 28/02/2022			Source : Bloomberg

Currency: the dollar plays its role as safe haven

The dollar index rose 0.2% last month. This meager performance masks a significant movement of the dollar during the month, especially against the euro. The euro appreciated sharply against the dollar in the first part of the month, from 1.11 to 1.15. The dollar then appreciated as geopolitical tensions increased. The Swiss franc and Japanese yen appreciated in the second half of the month as risk aversion returned to the markets. The Russian ruble fell on the last Monday of the month following the West's decision to impose heavy sanctions on the Russian economy.

Currencies	Current	February	3 months	Since 31/12
USD	1.121	0.1%	0.9%	1.5%
GBP	0.837	-0.2%	1.9%	0.5%
JPY	128.99	0.1%	-0.8%	1.5%
CHF	1.030	1.3%	1.1%	0.8%
Evolution versus EUR until 28/02/2022				Source : Bloomberg

Commodities: rising commodity prices

Commodities performed well in February. Gold rose nearly 6% during the month, while WTI crude oil rose nearly 9% after rising 17% in January. Agricultural commodities further rose 10% due to fears of a supply shortage of certain raw materials (wheat, corn) from Ukraine. Finally, the prices of industrial metals also developed positively in February.