This week

It has been many years since those on the continent have had to contend with war coupled with spiralling inflation, yet Russia’s invasion of Ukraine has brought about both with harrowing effect.

Whilst undoubtedly those in Ukraine have been hit hardest by the conflict, in the modern world its economic impacts can ripple far and wide. By the beginning of the new month, oil had already made its way back above $100 a barrel and safe haven 10-year German Bunds now negatively yielding again, as fears that global sanctions placed on Russia would have a negative impact on the wider economy.

It seems that the financial restrictions placed on Russia were having an immediate effect as equity markets in the country remained suspended and some bond trading platforms were no longer showing prices. Trading however, on the world's major financial markets remained orderly, albeit on a downward trajectory, with German, Italian and French bourses all down more than 3% on Tuesday.

There was some respite for markets by the middle of the week however, as Federal Reserve chair Powell indicated that the central bank will move on rates after its next meeting in two weeks but is monitoring the situation in Ukraine closely. The chances of a 50bp rise from 0.25% to 0.75%, which was widely expected, have now receded, with markets now pricing in just a 25bp move.

During his testimony to Congress, Powell said: "With inflation well above 2% and a strong labour market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month…The near-term effects on the US. economy of the invasion of Ukraine, the ongoing war, the sanctions, and of events to come, remain highly uncertain. Making appropriate monetary policy in this environment requires a recognition that the economy evolves in unexpected ways.

With fighting still raging on in Ukraine and oil prices heading towards $120 a barrel by the end of the week, much of the economic fundamentals that would usually drive markets fell by the wayside somewhat. However, US non-farm payrolls, often regarded as one of the most influential pieces of data for the Fed when mulling rate decisions, did make for a splash. Total employment in the US rose by 678,000 in February, with the unemployment rate edging down to 3.8% from 3.9%. consensus had been for the jobs market to add only 407,000 jobs, signifying a tightening market for employers.

Next week

With the conflict in Ukraine likely to dominate markets moves over the coming week, there are still a lot of important economic data points that should pique the interests of investors, especially those on domestic shores as the Bank of England considers raising rates further.

As Spring (allegedly) comes into view, the UK housing market enters one of its busiest periods of the year, with this in mind Halifax’s Housing Price Index, released on Monday should make for interesting reading. Detailing the change in the asking price of homes mortgaged by the provider, the data acts as the UK's earliest report on housing inflation. However, the housing industry's health should not be overlooked due to the wider industry activity it can spur. The property market has a wide-reaching impact on banks, mortgage providers, estate agents and even greatly impacts DIY and furniture companies who should benefit from increased activity in the sector.

The numbers should take on added significance with recent figures from the company showing that house prices are rising at their fastest pace in 15 years. 

It certainly will be a week of addresses in one way or another, with focus shifting to the continent on Thursday as the European Central Bank (ECB) holds its six weekly press conference, giving its views on the state of the European economy and its outlook for rates. This address acts as the primary tool the ECB uses to communicate with investors about monetary policy. It will contain outcome of their decision on interest rates and commentary about the economic conditions that influenced their decision. Most importantly, it discusses the economic outlook and offers clues on the outcome of future decisions.

The information in this blog or any response to comments should not be regarded as financial advice. If you are unsure of any of the terminology used you should seek financial advice. Remember that the value of investments can go down as well as up, and could be worth less than what was paid in. The information is based on our understanding as at 04 March 2022.