Events in Ukraine continued to dominate headlines, demanding attention from all, investors included. From a market perspective, Europe’s decision not to follow the US in embargoing Russian oil and gaswas critical to developments over the week, as it has removed some of the worst scenarios for European the economic growth outlook.
Last week’s performance – major stock markets
| S&P 500 | -2.88% |
| Nikkei 225 | -3.17% |
| CSI 300 | -4.22% |
| Euro Stoxx 50 | +3.68% |
| FTSE 100 | +2.41% |
Commentary
US:All eyes on the Federal Reserve
US markets fell over the week, with the information technology stocks among the key detractors. The sector is seen as most at risk to the threat of rising interest rates as higher rates. The Nasdaq index – which is heavily skewed towards high growth technology stocks – ended the week more than 20% below the peak it reached in November last year. The Federal Reserve – the US central bank – meets this week and is expected to raise interest rates for the first time since the Covid pandemic struck.
Japan:Economic concerns weigh on markets
Weak economic data added to the negative sentiment triggered by geopolitical events. Economic growth in the fourth quarter of 2021 was revised down from 5.4% to 4.6%, while household spending – which accounts for more than half of Japan’s GDP – fell in January, highlighting that the coronavirus has not gone away and raising fears that the economy may contract over the current quarter.
China:increasingly central to the geopolitical outlook
So far, China has played a relatively neutral role in the Ukrainian conflict. However, this neutral stance is becoming increasingly precarious. US intelligence agencies have reported that Russia has asked China for military assistance. Meanwhile, the Biden administration continues to put regulatory pressure on the Chinese technology sector, which this week led the Chinese stock market lower. The US and China will meet this week for a high-level diplomatic discussion, the outcome of which could have a significant bearing on developments in and around Ukraine.
Europe: Inflation and Omicron concerns impacts markets
Stock markets in Europe ended a volatile week with healthy gains following Europe’s decision not to ban Russian energy imports. Russia supplies roughly 40% of the continent’s energy needs, with countries in Eastern Europe, Germany and Italy even more dependent on Russian oil and gas. The decision therefore annulled some of the worst scenarios for the European economic growth outlook, and also helped drive the oil price some 15% below its recent peak.
UK:All eyes on Omicron
The UK stock market was bolstered by its high allocations to commodity producers – although the price of oil and some other basic materials fell sharply, they remain high, boosting profit margins at the like of Shell and Glencore. Financials – which typically benefit from higher interest rates – were also conspicuous among the winners. The Bank of England meets this week and is expected to raise interest rates for the third time since December.