This week

They say it takes two, and with Tuesday’s date reading 22/02/2022, a once in a lifetime mathematical sequence, there have been more than a couple of factors moving markets this week.

With the tensions on the Russian/Ukrainian border reaching boiling point, investors spent their time going backwards and forwards assessing what this could mean for global bourses from every angle. Monday saw the first wave of investor panic as Russian President, Vladimir Putin took steps to destabilise the region further by recognising the independence of the “Donetsk People's Republic” and the “Luhansk People's Republic”, subsequently ordering troops into two rebel-held regions under the guise of a peacekeeping mission.

The European Union, which feared such an outcome, denounced Moscow’s move as a "flagrant violation of international law" and reacted with a first wave of sanctions, including Germany putting the opening of gas pipeline, Nordstream 2, on hold. Separately, the UK froze five Russian bank’s assets.

However, the sanctions did little to deter the man in Moscow, with Thursday seeing a seemingly full-scale military assault of Ukraine, with Russia invading from the north, south and the east of the country. On the news it was no surprise that Europe’s main stock markets opened 2.5%-4% lower with government bonds, the US dollar, Swiss franc, Japanese yen and gold all rallying as investors fled to safe haven assets. The Cboe Volatility Index, known as Wall Street's fear gauge has also risen more than 55% over the past nine days.

It certainly wasn’t all quiet on the eastern front either, with the Russian rouble weakening nearly 7% to an unprecedented low against the US dollar. The Moscow stock exchange also sank over 10% when it opened after an initial suspension, with the Russian central bank also ordering a ban on short selling.

Heading in the other direction was oil, breaking above $105 a barrel for the first time since 2014, jumping 8.5% on the day. Russia is the third-largest oil producer and second-largest oil exporter in the world with nearly 1 in 10 barrels having been pumped from the nation. Given low inventories and dwindling spare capacity, the oil market rallied on the prospect of further large supply disruptions.

By Friday however, some of the losses incurred during the earlier part of the day had begun to be recouped. After falling sharply initially, U.S. Treasury yields pared most of their declines and Russia's rouble recouped much of its losses against the dollar while safe-haven gold was in the red after earlier rising as much as 3.5%. Much of the relief was down to U.S. President Joe Biden's unveiling of new sanctions against Russia, declaring that the United States is working with oil producers to secure global energy supplies.

Whilst it was certainly events in Eastern Europe that drove market movements this week, there was noteworthy news on domestic shores as the Bank of England testified to Parliament’s Treasury Committee. The bank certainly faces a conundrum or two going forward, with inflation set to hit 7% by the Spring. Deputy Governor Ben Broadbent warned that “This is the most challenging period for monetary policy since inflation-targeting began in 1992,”

Next week

With the coming week seeing the transition from February to March, a month named after Mars, the Roman god of war, it is with some irony that market movements are likely to be dominated by events in Ukraine during the coming week.

With many on the continent wondering just what to make of Russia’s invasion, the beginning of the week sees a host of data detailing what has been manufactured over the last month, not just in the Eurozone, but here in the UK as well. Manufacturing PMIs can have a stronger impact depending on the nation they represent. For example, in a manufacturing powerhouse such as Germany, the data should have quite an impact whereas in a service led economy such as the UK, it can have a fairly muted influence. The data itself is useful as it acts as a leading indicator of economic health, businesses react quickly to market conditions, and their purchasing managers perhaps hold the most current and relevant insight into the company's view of the economy.

With inflation fast becoming one of the main themes of the year so far, we should receive more of a gauge on how prices are rising when the British Retail Consortium (BRC) releases its shop price index figures. Covering prices on a year on year basis, the numbers lead the government’s consumer inflation data by about 10 days, but has a narrower scope as it only includes goods purchased from retailers who belong to the BRC.

The end of the week brings with it the first Friday of the month and as always, US Non-Farm Payroll data. A key piece of information when determining the US central bank’s next rate move, it provides plenty for economists to get their teeth stuck into. The employment data itself will be accompanied by Average Hourly Earnings, allowing us to gauge future inflation expectations as the more consumers earn, the more they tend to spend, a vital piece of data as the Federal Reserve looks to start hiking rates in a few weeks.

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 25 February 2022.