WeeklyWatch – An eventful week for commodities as Ukraine crisis intensifies

15 March 2022

Stock Take

Market movements

Global markets continued to feel the burden of volatility last week, particularly in light of heightened activity on the commodities front.

In the UK, it was a positive week for equities, with the FTSE100 rising by +2.4% and the FTSE250 by +4.2%. The announcement from the Office for National Statistics (ONS) was likewise of solace to investors, as it revealed that UK GDP grew by 0.8% in January – higher than pre-COVID-19 levels. Naturally, these figures were measured ahead of the crisis in Ukraine, and, together with a “cost of living crisis”, Paul Dales – Chief UK Economist at Capital Economics – was therefore compelled to say that January’s data would be “as good as it gets for this year.”

In Europe, meanwhile, the major indexes were all boosted by last week’s retreat in oil prices, with the German DAX and French CAC40 climbing by +4.1% and +3.3%, respectively.

Investors and fund managers are currently having to grapple with ever-changing circumstances, with little chance of controlling or predicting future developments in Ukraine. Further sanctions have been introduced against Russia by the West over the past week, including against Chelsea’s current owner – Roman Abramovich.

Eric Black, Research Analyst at Sands Capital, commented:

“We know that in times of uncertainty, it is important to maintain focus on the long term and on finding the best growth businesses, benefiting from secular trends around the world. Because of the geopolitical risks exacerbated by the invasion, we no longer view Russia as investable for Western-based, long-term investors.”

US stats

In the US, the tech-heavy NASDAQ index dropped into bear market territory – having declined by more than -20.0% from its recent peak. The broader S&P500 meanwhile dipped by -2.9%.

US inflation data for February was released last week, showing a reach of 7.9% – the highest rate since 1982. It may come as no surprise that increasing energy prices were the biggest contributor. Ian Shepherdon, Chief Economist at Pantheon Macroeconomics, noted that, despite the fact that rates remained below 8.0%, his predictions are that “it will break that barrier quite comfortably in March, hitting 8.2-to-8.4%. That will be the peak, though, and we expect the rate to be down to 5.5% by September.”

Trading woes

Oil prices eventually ended up in negative territory by the close of the week. Yet up to that point there had been a rollercoaster ride, including a barrel of Brent Crude topping $139 on Monday as Russia stepped up its attacks in Ukraine. The Emirati Oil Minister proposed that OPEC should intensify production, which prompted a sharp retreat in the price and, while those comments were later retracted, Brent closed the week -4.7% lower at $112. Elsewhere, Nickel trading was shelved in London after the price more than doubled on Tuesday to $100,000 a tonne because of fears over supply challenges. Nickel is a critical component in the manufacture of stainless steel and batteries for electric vehicles.

The hike in commodity prices mean many are worried about the return of ‘stagflation’ – a term to describe a period of rising inflation coupled with slow economic growth and relatively high unemployment.

Arnab Das, Global Market Strategist for Invesco, said parts of the global economy would see some form of mild stagflationary shock; however, the impact of this would be spread unevenly.

“Europe is closer to the epicentre of the [Russia/Ukraine] conflict and the crisis. It’s closer to the epicentre of the stagflation problem if there is one. The US is relatively removed. However, major emerging market energy and commodity importers such as India and Turkey could also have something closer to stagflation.

Rising concerns

Fears around economic growth prospects are leading to challenging debates as regards scheduled increases to National Insurance rates in April. What’s more, the UK’s energy price cap is due to increase by 54% within the same month. Costs elsewhere are also on the rise, meaning that pressure is mounting on the government to act to mitigate these concerns.

Last week, MPs accepted a non-binding motion calling on the government to write off the National Insurance rise.

Speaking to MPs, Shadow Chancellor Rachel Reeves told the House of Commons:

“What is happening in Ukraine will have a cost of living effect here at home, too. When the facts change, so should your policies. People cannot afford ministers to carry on regardless of worsening circumstances.”

Looking ahead, the Bank of England hosts its monthly monetary policy meeting this week, where it is expected to raise the base rate once again – by a further 25bps to 0.75%. This will likely increase the pressure on Rishi Sunak when he releases his Spring Budget, due on 23 March.

Wealth Check

Formulating a financial plan may involve considering your long-term care requirements, depending on what stage of life you’re currently at. To highlight the benefits, we’ve debunked five common myths about care.

“I won’t need social care support”

It’s nigh on impossible to know for certain whether you’ll need some form of care when you get older. However, there’s a strong possibility that you will.

Tony Clark, Senior Propositions Manager at St. James’s Place, says:

“We’re living longer. We may think we won’t need it, but there’s a good chance that most of the 30 and 40-year-olds of today are going to be living well into their 90s. And will they be likely to need care? I think so.”

“The state will pay for my care-home costs, or the costs of in-home care, if I need it”

You might expect your care-home costs to be funded by the state, whereas in fact it all depends on your personal circumstances.

Many people will likely need to pay at least a proportion of their own long-term care costs, if not all. Your financial adviser can look at your location and circumstances, and advise accordingly.

“Care means living in a care home”

This is a common fallacy. Most of us who’ll require paid care are more likely to remain in our own homes and make use of visits from carers.

“The important thing to remember is the costs and other implications that come with that,” notes Tony Clark.

“Will I have to sell my home to pay for care?”

In a nutshell – no. While selling your home is an option, it’s not always necessary.

Ros Clarke, Long-Term Care Consultant at SJP, says:

“Unless you are receiving care at home, the property will normally be taken into consideration, but there are lots of different situations where it will be excluded.”

“If I’m unable to look after my own affairs, my next of kin will automatically be able to do it for me”

In this instance, a power of attorney is needed for next of kin to enact this. Without this legal process in place, not even a spouse or partner will have the right to access your finances or make important decisions about your health and welfare – let alone anyone else.

When it comes to long-term care planning, or if you have an immediate need, Tony Clark emphasises the need to seek professional financial advice.

“An expert adviser will help you to map it all out, understand the complexities of the system and work out the best choices for your own circumstances.”

Powers of Attorney involves the referral to a service that is separate and distinct to those offered by St. James’s Place and are not regulated by the Financial Conduct Authority.

In The Picture

Stock market falls exceeding 10% occur in more years than not – and yet overall returns have been buoyant over the last 50 years.

In spite of regular falls, remember that global equities have returned an average of 10% a year over the last 50 years – a period that has witnessed many geopolitical and economic jolts.

Past performance is not a guide to future performance and may not be repeated.

Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

The Last Word

“I just want to say thank you to my team-mates, who support me all the time, every day. To West Ham fans, they also support me and Ukrainian people and also to all British people, because we feel you support us.”

– West Ham’s Ukraine international Andriy Yarmolenko gives an emotional interview after scoring in his sides 2-1 victory over Aston Villa.

The information contained is correct as at the date of the article.

Sands Capital and Invesco are fund managers for St. James’s Place.

The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place or Wellesley Wealth Advisory.

Source: London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group”). ©LSE Group 2021. FTSE Russell is a trading name of certain of the LSE Group companies.

“FTSE Russell®” is a trademark of the relevant LSE Group companies and is used by any other LSE Group company under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company’s express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication.

© S&P Dow Jones LLC 2021; all rights reserved.