Week Ending February 18 Financial Markets Update

The S&P 500 Index finished lower for the week as markets reacted to several economic releases, the ongoing uncertainty in Eastern Europe, and the release of minutes from the most recent Fed meeting. The January PPI Index growth of 9.7% year over year confirmed that inflationary pressures exacerbated by supply chain bottlenecks are continuing to inflict damage on producers. Retail sales numbers on Wednesday surprised to the upside as consumer behavior was driven mostly by online retail, automobiles, and building materials. Also on Wednesday, minutes from the recent Fed meeting were released which indicated that market expectations for multiple rate hikes in 2022 are well founded.

U.S. Treasury bond yields finished the week lower across the yield curve as markets reacted to the fluid Ukraine-related news and persistent inflation pressure on the U.S. economy. Producer Price Index (the PPI) data was reported early last week. The PPI rose 1.0% in January, 0.5% higher than expected. Producer prices are up 9.7% versus a year ago, reaffirming that inflation is rampant in the U.S. economy. Treasury yields jumped on Tuesday, most notably the 10-year treasury yield hit its highest level since July 2019.
According to Bloomberg’s calculation, the odds of a 50 bps rate hike instead of a 25 bps rate hike dropped from 63% to 50%.
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