Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
Goldman Sachs’ prominent U.S. economist Jan Hatzius discussed the likely effects of the events in the Ukraine on the U.S. economy,
“Russia-Ukraine tensions have pushed the Fed’s geopolitical risk index to a very high level. Any direct effects on the U.S. economy should be limited because trade links are weak and energy prices are likely to be affected far less in the U.S. than in Europe. Our rules of thumb imply that a $10/bbl increase in the price of oil boosts U.S. core inflation by 3.5 basis points and headline inflation by 20bp, but lowers GDP growth by just under 0.1 percentage points. The growth hit could be somewhat larger if geopolitical risk tightens financial conditions materially and increases uncertainty for businesses. The combination of upside inflation risk and downside growth risk has mixed implications for monetary policy. Historically, Fed officials have sometimes preferred to delay major policy decisions until uncertainty surrounding geopolitical risks diminished. In some cases, such as after September 11 or during the US-China trade war, the FOMC has cut the funds rate.”
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Citi analyst Sathish Sivakumar updated clients on global supply chain pressures,
“In sea freight, U.S. West Coast port congestion has increased. The seven-day moving average of vessel capacity at port/anchorage for this week has increased to 0.86 million TEU [twenty-foot equivalent units] compared to last week’s 0.77 million TEU. However, on the U.S. East Coast, the seven-day moving average has marginally decreased this week to 0.95 million TEU vs. last week’s 0.99 million TEU. This week we have seen a reduction in cancelled sailings to c.9% compared to c.5% a year ago. We see the cancelled sailings as the near-term capacity management by liners to negate the pressure on congestion and freight rates.”
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BMO economist Robert Kavcic looked for U.S. equity market sectors that have held up best during the correction,
“Not everything in the equity market is in correction territory ... Defensives, financials and high-dividend paying equities have held up relatively well, down less than 6% from their 52-week highs (understand that there is some overlap in those groups). Value and large caps have fallen roughly inline with the S&P 500. The real damage has been done in momentum stocks, small caps and longer duration/higher-valuation tech stocks. Interestingly, this relative performance is almost right on what we predicted heading into an inflationary tightening cycle, which is only meant to say that the market seems to be behaving appropriately at this stage”
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Diversion: “This Hell Planet Has Metal Clouds, Astronomers Say” – Gizmodo
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Scott Barlow