As Russian forces stepped up their attacks on Ukrainian cities, a growing number of companies suspended operations/sales in Russia. G7 nations said they would end normal trade relations with Russia, including revoking Russia’s “most-favoured nation” status (a move that will lead to higher tariffs on many Russian exports) and stopping Russia from obtaining any financing from international institutions such as the IMF and the World Bank. President Joe Biden banned imports of Russian oil and gas into the US, while the UK announced it would phase out Russian oil imports by the end of this year. The EU said it would cut Russian gas imports by two-thirds within a year.

FTSE Russell announced that Russian stocks are to be deleted from all its equity indices, while MSCI removed Russia from its Emerging Markets Index and JPMorgan removed Russian bonds from its emerging market benchmark. The expulsion of Russia from these benchmark indices could lead to significant inflows into regions such as Latin America.

UK

The FTSE 100 lost 4.5% over the fortnight. At one point the index fell below the 7,000 level and hit its lowest closing level since October 2021.

UK GDP increased a faster-than-expected 0.8% in January after shrinking 0.2% in December.

US

The S&P 500 fell 3.1% over the two-week period, while the tech-heavy Nasdaq tumbled 5.1%.

Investors dialled back their expectations of US interest rates hikes after Fed chair Jay Powell indicated the US central bank would raise interest rates more slowly given the Ukraine conflict and pointed out that the outbreak of war in Ukraine brought a significant degree of uncertainty for monetary policy. Nevertheless, he indicated that rates are likely to rise by 25bps in March and said he expects a “series” of interest rate increases this year. If inflation fails to moderate, he also hinted that he could support raising rates by larger increments later this year.

Non-farm payrolls rose 678,000 in February, the most since July, eclipsing economists’ expectations and building on an upwardly revised 481,000 positions created in January. That pushed the unemployment rate to 3.8%. Average hourly earnings jumped 5.1% year on year in January.

The University of Michigan index of US consumer sentiment slumped to 59.7 in March from 62.8 in February. It was the lowest reading since November of 2011, as inflation expectations rose sharply due to a surge in fuel prices exuberated by the Russian invasion of Ukraine.

US inflation rose to 7.9% in February, fuelled by higher energy, food and shelter costs, marking the fastest annual increase since January 1982. Core inflation jumped 6.4%.

The Bank of Canada increased interest rates by 25bps to 0.5%, its first hike since October 2018, and reiterated it will use its monetary policy tools to return inflation to the 2% target.

Europe

The FTSEurofirst 300 dropped 5.0% over the two weeks.

The European Central Bank scaled back its bond-buying stimulus plan in response to inflation being driven up by the war in Ukraine. It also raised its forecast for inflation this year from 3.2% to 5.1%, citing the “exceptional energy price shocks” stemming from the war in Ukraine.

Eurozone inflation rose to record 5.8% in February, up from 5.1% in January.

Italy’s economy expanded at a faster-than-expected rate of 6.6% in the final quarter of 2021 as investment, consumption and exports bounced back from the shock of the Covid pandemic. Its fiscal deficit was also below official targets.

Japan

The Nikkei 225 declined 5.0% over the two-week period.

Pacific Basin

Australia’s GDP grew 3.4% in the final quarter of 2021 as consumers emerged from lockdown to spend heavily over Christmas. The economy now is bigger than it was before the pandemic.

China unveiled a growth target of about 5.5% for 2022, its lowest in three decades. Beijing has maintained a zero Covid approach and is following a “common prosperity” policy to reduce inequality and boost the Communist party’s control over business. It has also had to contend with a debt-fuelled real estate crisis.

China’s Caixin manufacturing purchasing managers’ index rose to 50.4 in February from a 23-month low of 49.1 in January.

Chinese technology stocks, including Alibaba and Tencent, looked set for their worst week in a year amid concerns over forced de-listings from Wall Street and new difficulties for groups planning to sell shares in Hong Kong.

Emerging Markets

Turkish inflation rose 54.4% in February, the fastest rate in 20 years as a currency devaluation fed inflation, with food and energy driving the surge.

South Africa’s JSE FTSE All Share touched a new record high, supported by rising prices of commodities, notably oil, gold and platinum group metals, amid the ongoing conflict in Ukraine.

Brazil’s GDP rose 0.5% in the three months to December 2021, following two consecutive quarters of contraction, above market expectations of a 0.1% rise and officially exiting a mild recession.

Hungary’s central bank raised interest rates by 75bps to 5.35% to protect the forint. The upwards move was larger than expected and marked the largest since 2008. Elsewhere in Eastern Europe, both Poland’s central bank and the Czech central bank intervened to support the zloty and koruna, respectively.

Argentina’s congress has voted in favour of a deal to restructure $45bn in debt with the IMF from its record 2018 bailout.

Bonds

The yield on Germany’s 10-year Bund dropped back below zero, falling as low as -0.08%, while the Italian 10-year bond yield fell to 1.40%, having risen to almost 2.0% in February. However, yields subsequently climbed once more, with the 10-year German Bund yield nearing 0.3% after the ECB appeared to take a more hawkish stance.

In the US, the 10-year Treasury yield dropped to below 1.7% while the yield on the two-year note touched 1.26%. However, yields later rose once more as US inflation data exceeded expectations. The 10-year Treasury yield broke back above the 2.0% level, while the yield on the two-year note climbed to 1.75%.

Commodities

Gold peaked at nearly $2,070 this week, trading within touching distance of an all-time high of $2,072.50 hit in August 2020.

Wheat prices hit a 14-year peak of almost $13 a bushel.

Brent crude rose as high as $139 a barrel — a level last hit 14 years ago — as traders reacted to news of the US ban. However, oil prices later retreated with Brent crude settling near $115 a barrel after the UAE encouraged fellow OPEC members to increase production.

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Image by Gerd Altmann from Pixabay