01 March 2022
The emerging crisis in Ukraine eclipsed all other news last week, as Russian forces invaded the country early on Thursday morning. Grave humanitarian concerns have subsequently been triggered, with some news outlets already reporting hundreds of thousands of refugees, as civilians seek to flee the violence.
The consequential instability on worldwide markets was acute – they plummeted sharply when opening on Thursday, only to recover to some extent as the day unravelled, with the recovery extending into Friday’s trading. Countries across the globe reacted by introducing sanctions against Russia, with Germany cutting short the certification of the controversial gas pipeline, Nord Stream 2, which would have enabled Russia to directly supply Germany with gas, bypassing Eastern Europe.
Pressure on Russia
Ruminating on last week’s events and the impact on the Russian stock market, Neil Shearing – Group Chief Economist at Capital Economics – noted the following:
“The sanctions have caused turmoil in Russia’s financial markets, with the Ruble opening [on Monday 28/02/2022] down 30% against the dollar in offshore trading and falling by much more (~70%) on local retail currency exchanges.
“These are the conditions in which runs on local banks begin. The Central Bank of Russia has this morning raised interest rates to 20%. All of this will accelerate Russia’s economic downturn – a fall in GDP of ~5% now looks likely.”
Keith Wade, Chief Economist and Strategist at Schroders, said in his comments last week that events in the Ukraine would potentially support an environment where inflation and stagnation of economic output endure.
“We’re adjusting upwards our forecast for inflation, while taking our forecast for growth downwards.
“We expect Europe to be the region that takes the biggest hit to both growth and inflation. Globally the effects are likely to be less substantial as we were heading in a stagflationary direction, anyway, given that the tightness of supply chains and labour markets is worse than expected.”
Meanwhile in the US, the S&P500 did in fact end the week in positive territory, with a +0.8% gain while the intraday move in the Nasdaq – which swung by 6.8% on Thursday – was the most significant since the outbreak of the pandemic in March 2020.
The FTSE100 and FTSE250 in the UK both rounded off the week in the red – the former dropping by -0.3% and the latter by -2.1%, with the fall in sterling affecting domestic companies. In Europe, sharp downward moves were observed, with the German DAX and French CAC40 retreating by -3.2% and -2.6% respectively. In Asia, the Nikkei 225 dropped by -2.4%.
As anticipated, the rally in oil prices continued because of concerns surrounding major supply disruptions as a result of the war in Ukraine. Behind Saudi Arabia and the US, Russia is the third largest oil producer, and the events of last week saw Brent crude rise by +5.0% to $97.98 a barrel. Gold – which had initially recovered as events unravelled – ended the week moderately lower (-0.4%) at $1,887 an ounce. Copper prices likewise receded due to the risk-off sentiment, with the metal declining by -0.9% to $9,918 a tonne.
The Labour Market Report is the main release due from the US this week, with the headline unemployment rate predicted to have declined to 3.9%. The US economy is anticipated to have added an additional 400,000 new jobs during January. Further US economic data due for release includes the latest Purchasing Managers’ Index (PMI) equivalents from the Institute for Supply Management. PMIs use regular surveys from businesses to generate economic indicators, which fund managers can use to support their investment decisions. Final PMIs for January are also due from the UK this week, along with the most recent consumer borrowing report from the Bank of England.
Eurozone data is set to be busy this week, with CPI inflation among the main figures due. Retail sales and unemployment figures are also due to be published towards the end of the week. Inflation rates will be of particular interest to commentators, given the creeping fuel prices, and high inflation already recorded in both the UK and US. Furthermore, it’s an active time for Japanese data, with industrial production, retail sales and unemployment all released over the course of the week.