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 Wheat Continuous Contract (W.F) & Sector Scopes Monthly Update March 2022

In the absence of other notable business news, the ongoing war in Ukraine has continued to create turmoil in world markets over the last week, sparking significant capital flows across and within asset classes. For most of the last week, sentiment has been “risk-off” with capital fleeing equities for commodities (crude oil soared above $125/bbl to its highest levels since 2008) and defensive havens (sending gold back up above $2,000/oz). Yesterday, however, this reversed a bit with stock markets, particularly in Europe rebounding, while gold and oil dropped back. It remains to be seen if this was a dead cat bounce or the start of a larger reversal of fortune.

Starting today, however, some of the focus may shift toward how central banks are going to respond to high inflation in a time of high political tensions. The European Central Bank meets today, followed by the Fed next Wednesday and the Bank of England plus the Bank of Japan later next week. With inflation running far above most central banks’ long-term goal of 2.0%, and energy plus grain prices continuing to climb, central bankers appear to have fallen far behind the curve and are under pressure to start tightening even in the face of political uncertainty. In recent weeks, the Bank of Canada and the Reserve Bank of New Zealand raised interest rates, and there is a growing question of whether any delay to tightening now would just force central bankers to have to tighten more to catch up later.

In addition to its monetary policy decision, the Fed on Wednesday will also be releasing its quarterly forecasts for GDP, inflation, unemployment and fed funds. Back in December, the fed was looking at a Core PCE inflation rate of 2.6%, in January it was running at 6.1%. Fed members were also forecasting 1-4 interest rate increases this year with the largest group anticipating 3 hikes in 2022. The Fed has 7 meetings remaining this year and there have been hints that every remaining meeting this year could potentially be live for a possible rate hike, but the dot plot could give a better idea on this.

Earnings season is done with only a few scattered reports due next week. There are a number of economic reports on the way starting with Canadian employment tomorrow and continuing with retail sales reports from the US, UK, Canada and China over the course of next week.

In this issue of Equity Leaders Weekly, we take our monthly look at sector scopes and at inflation in grain prices.

Wheat Continuous Contract (W.F)

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