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This week

January, the first month of the year and typically one that can prove to be very fickle for markets. It is no surprise therefore that the month is named after Janus, the Roman god of new beginnings and transitions, himself with 2 faces, looking both backwards and forwards.

The first trading day of the year saw things looking up for US markets, in particular for Apple, the technology company becoming the first stock to reach a $3 trillion market cap. With the S&P 500 having added an impressive 27% and 70 record closes during 2021, it looked like the same returns may be achievable again as bank stocks surged in response to a jump in US treasury yields.

However, much like the aforementioned Janus, a rise in treasury yields can be somewhat two faced. Whilst they indicate a heightened chance of a series of rate rises, aiding the profitability of banks, high growth, leveraged companies, often found in the tech sector see their borrowing costs escalate.  It was for this reason, Tuesday saw the tech heavy NASDAQ shed 1.3%, with losses flowing through to equivalent Asian companies the day afterwards. In Hong Kong, the tech index faltered by 3.7%, with added pressure coming from the Chinese government’s fines on Alibaba and Tencent also weighing on sentiment.

Not helping matters for big tech was a surprisingly hawkish tone struck by the US Federal Reserve when releasing the minutes from their latest meeting on Wednesday. The transcript showed that Fed officials had discussed shrinking the U.S. central bank’s overall asset holdings as well as raising interest rates sooner than expected to fight inflation, with "many" judging the appropriate pace of the Fed's balance sheet reduction would be faster this time.

Helping to aid the Federal Reserve’s decision to quicken the pace of its battle against inflation, the end of the week saw Non-Farm Payroll data released, a key piece of data when determining just how fast prices may rise. The US economy added 547,000 jobs for the month, far in advance of the 365,000 forecasts. Average hourly earnings were also shown to have risen by 0.6%, ahead of estimates of 0.4% showing that not only were more people in work in the US, they were also earning more than expecting. Facing such a robust set of figures, the Federal Reserve could now look to raise rates quicker to stem what will surely be greater demand from a more confident consumer.

Next week

The first full working week of 2022 brings with it a raft of economic data releases, as Christmas and New Year’s begin to feel like a lifetime ago.

With sporadic lockdowns having characterised many Christmases on the continent, Monday’s European unemployment figures should offer us a fascinating insight into how the spread of the Omicron variant has affected the bloc’s labour market.  The figures will measure the percentage of the total work force that is unemployed and actively seeking employment during the previous month and will break down sector by sector which industries have suffered the most.

Across to the US, where one man will be happy to remain in employment, as Jay Powell, the Chair of the US Federal Reserve testifies at his re-nomination for the role before Senate Banking Committee in Washington DC. Although his testimony will be largely symbolic, it will offer some insight into how the central bank intends to move forward and tackle the record levels of the inflation the US is experiencing.

Such levels of inflation should be made apparent by Wednesday as the US Bureau of Labor Statistics releases its monthly CPI data, measuring the change in the price of goods and services purchased by consumers during the period. With inflation having hit record highs during the end of 2021, many will be watching for signs that the price pressures the consumer is feeling may be starting to cool a little.

On domestic shores, it will be UK GDP that grabs the headlines this week. Acting as the broadest measure of economic activity and the primary gauge of the economy's health, many will be hoping that the UK economy starts 2022 on a positive footing, despite the testing time the Omicron variant has brought.

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding in January 2022.