It did not take 2022 long to reminds us all that there may be a bumpy road ahead, as markets navigate the Federal Reserve’s transition to a tighter monetary policy stance. US markets saw their worst start to the year since 2016, although there was some notable sector rotation evident under the surface. Last week the Federal Reserve released the minutes of their December meeting which were interpreted as being distinctly hawkish in tone. The US Non-Farm Payrolls release on Friday (more details below) also suggested that the employment market may be tightening further which, given the Fed’s dual mandate of employment and inflation, could provide further impetus to those of a more hawkish persuasion. This has also not gone unnoticed in the US bond market, with the benchmark 10 year treasury yield now standing at close to 1.80% having been at 1.34% in early December.
Finally, keep an eye out for the start of earnings season on Friday, with JP Morgan and Citigroup both reporting. Whilst the focus has been on the macro environment in recent weeks, many US banks looks set to report their most profitable full year earnings ever.