(source: Bloomberg https://www.bloomberg.com/markets, MSCI https://www.msci.com/end-of-day-data-search and ARG Inc. analysis)

What happened last week?

• The Federal Reserve and the Bank of Canada announced monetary policy updates last Wednesday, holding their benchmark rates unchanged; both are now poised to increase interest rates in March.

• Intra and inter-day volatility rose as the comments made by Fed Chair, Jerome Powell, were released.  He indicated that rates could be increased without harming employment. It appears that the Fed may increase rates rapidly before slowing the number of increases as 2022 proceeds.  All of the maneuvering by the Fed is to control inflation which is well above the 2% goal, sitting at 7% as of December.  The Fed also plans to end its bond-buying program in March and to reduce its holdings that support long-term interest rate reduction. (Source)

• The Bank of Canada had already ended its bond-buying support last autumn.  Interest rates were left unchanged due to uncertainty of the negative effects of Omicron and inflation at approximately half the U.S. rate.

• As speculation about interest rates increases, expect volatility to build, as the political situation in Ukraine contributes to uncertainty as well.  The VIX volatility index reached its highest level since early 2021 as analysts digested central bank guidance for their stand-pat policies and tensions between NATO and Russia rose. (Source)

What’s ahead for this week?

• In Canada, December’s manufacturing sales and wholesale trade will be released. On Wednesday morning the Bank of Canada will deliver its monetary policy announcement and report.

• In the U.S., Purchasing Managers Indexes (PMI) will be released from Markit and December’s new home sales, goods trade deficit, wholesale and retail inventories will be announced.  The Federal Reserve’s Open Market Committee will meet and announce their latest monetary policy on Wednesday afternoon as the quarterly corporate earnings season continues.

• Globally, PMIs will be released for several countries including Japan, the Eurozone and U.K.  Germany’s GDP and Business Climate Report from Ifo. The Eurozone consumer confidence numbers are also scheduled.

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