Market Commentary 8th March 2022 from Charlie Hancock

The UK government acted with the European Union (EU) and the US to exclude Russian banks from the SWIFT banking network. The Treasury banned Russian companies involved in the defence industry from accessing UK insurance services and the London Stock Exchange suspended trading for dozens of Russian companies.

Some stocks experienced positive returns last week. In the mining sector, Rio Tinto saw their share price gain 6.37% amidst concerns of disrupted metal supply from Russia and Ukraine, whilst rival Glencore rose by 4.90%. Defence and aerospace company BAE Systems saw their share price gain 5.91%.

With continental Europe heavily reliant on the supply of natural gas from Russia, investors appeared concerned that sharply rising prices for gas and other commodities could result in the Eurozone entering a recession. Areas of the stock market which are sensitive to economic growth, such as the banking sector, experienced a sharp pullback. French banking group BNP Paribas saw their share price decline by 16.38%, whilst Swiss bank UBS fell by 15.62%.

Eurozone inflation rose in February, with consumer prices rising by 5.8% year-on-year. The data showing an acceleration from January’s inflation rate of 5.1% coincided with some hawkish comments from European Central Bank (ECB) officials. The EBC Vice President, Luis de Guindos, said that the Russia-Ukraine conflict would likely result in higher inflation and lower economic growth. Other key ECB members signalled that rate hikes may be necessary to reduce inflationary pressures.

The US energy sector experienced strong performance amidst rising oil prices, with Exxon Mobil gaining 8.08% and Chevron rising by 12.96%. Consumer staple stocks were also in favour, resulting in Walmart and Costco gaining 4.71% and 1.55% respectively. Most economically sensitive sectors experienced sharp declines across the week. Banking giant JPMorgan declined by 9.22% and Wells Fargo moved 9.80% lower. Netflix suffered a decline of 7.44% and Amazon lost 5.30%.

The outlook for US monetary policy also appeared to have some impact on sentiment during the week. Federal Reserve chair, Jerome Powell, stated during a testimony to Congress that he was in favour of implementing an interest rate hike of 0.25% this month. Powell indicated it was too early to say if the Russia-Ukraine conflict would impact Fed policy over the medium to long term.

Economic data for China was mixed, with a Purchasing Managers’ Index (PMI) for the manufacturing sector moving back into expansionary territory, whilst growth in the services sector continued to slow. A state-owned newspaper reported that the People’s Bank of China (PBoC) is considering cutting interest rates further to try and bolster economic growth. China did not take part in any internationally agreed sanctions against Russia.

Japan’s Prime Minister, Fumio Kishida, announced fiscal policy measures in response to rising energy prices, including subsidies for industries which will be heavily impacted. Japan will also reportedly release oil from their emergency reserves in an attempt to counteract reduced supply from Russia. The government joined western nations in implementing sanctions on Russia and moved to freeze Japanese assets held by Russian oligarchs.

GBP / EUR – Current 1.2108 Previous 1.1900

Volatility in foreign exchange markets heightened last week. The Pound declined by 1.33% against the US Dollar, with demand for the greenback surging amidst the risk-off mood. Against the Euro, the Pound gained 1.75%.

Talks between the US and Iran on a nuclear deal intensified, with the US hoping that increased Iranian output will be able to counteract a reduction in oil supply from Russia.