Market Update – 2nd March 2022.

2nd March 2022

The situation in Ukraine has continued to be the focus of markets, news headlines and, of course, our thoughts. As the invasion over Ukraine intensifies, we are still in the midst of uncertainty, and as such, markets have continued to be volatile so far this week.

Despite the selloff in global markets on Tuesday, in his first State of The Union Address, US President Joe Biden looked to reassure the world, standing up for democracy, citing Putin as a dictator and stating that Putin “met a wall of strength” and global unity, and is now more “isolated from the world than he ever has been”.

Some updates since our last commentary on Monday include sanctions against yet more Russian banks, and sanctions at UK seaports to block access to Russian vessels.

And we’ve started to see these sanctions have an impact, with Russian markets closed on Monday and Tuesday and closed again for a third day today. The share price of Russia’s majority state-owned oil company, Gazprom, is down 35% year to date, state-owned Russian bank, Sberbank, down nearly 57% year to date, and the MOEX Russia Index down nearly 35% year to date. In the case of Sberbank, Russia’s largest bank, following Europe freezing its main business in the Western Bloc, and given the threat of it failing following significant outflows, it has today announced it will be withdrawing from the European market.

Residents of Russia have struggled, with reports that payment terminals in some shops and barriers on Moscow’s metro system have been blocking payments from Apple Pay and Google Pay. After the queues at ATMs to withdraw cash, the central bank raised rates to 20% (which we discussed on Monday), aiming to attract citizens to keep their money in the banks with a high rate of interest. However, this now causes a concern for residents with an existing debt, or wanting to take out new debt. The aim of the sanctions isn’t to harm the Russian economy for the sake of malice or revenge, but to cause an impact that forces Putin’s hand, with the ultimate aim of ceasefire.

Whilst we are aware that the situation in Ukraine and sanctions again Russia indicate that some of the pressures behind inflation will be prolonged, we are still likely to see easing of some key drivers behind inflation, as we look to get some resolution for the geopolitical tensions, and Covid-19 induced supply chain bottlenecks are gradually alleviated.

As we have stated, we appreciate that markets will likely be driven by the situation in Ukraine, we continue to scrutinise the release of data sets that are key to the long-term outlook for markets.

Looking at the data for the rest of the week we have Eurozone PMI, PPI and unemployment figures, US factory orders and jobs data, and Eurozone retail sales.

The Investment Management Team