Russia invaded Ukraine. The US, EU and UK announced fresh sanctions. While the sanctions stopped short of curbing Russia’s energy exports, they will limit the ability of Russia’s central bank to use its reserves and some of the country’s lenders will be expelled from the SWIFT global payments system. The US also cut Russia off from western financing, while Germany halted certification of the Nord Stream 2 Russian gas pipeline.

Global stocks were volatile, while bonds also sold off as the conflict may lead to Russia’s energy and resources being cut out of global supply chains, exacerbating already high inflation and prompting central banks to respond with rapid interest rate rises.

UK

The FTSE 100 slid 0.3% over the week.

The flash IHS Markit/Cips composite purchasing managers’ index rose to an eight-month high of 60.2 in February, up from 54.2 in January. Activity in the UK’s dominant services sector hit an eight-month high of 60.8, while manufacturing activity held steady at 57.3. The survey pointed to the fastest rate of job creation since October, driven by the service economy, with demand for business services increasing alongside higher leisure spending. The overall rate of input cost inflation was the steepest since November and the second highest since the index began in 1998.

UK consumer confidence index, as measured by research company GfK, fell to -26 in February amid surging living costs. This was the lowest score since January 2021 and one of the worst since the start of the pandemic.

Anglo American joined other mining companies in delivering record profits and cash returns with a $2.1bn final dividend. Elsewhere, Rio Tinto declared $16.8bn in dividends, marking the second biggest in UK corporate history, while Glencore and BHP also recorded strong results and handed large sums of cash to investors.

US

The S&P 500 gained 0.6% over the week, while the Nasdaq rose 0.8%. US stocks were volatile, rallying strongly towards the end of the week after touching their lowest levels since last June with the sell-off taking the S&P 500 index into correction territory. The biggest drivers of the decline were technology and consumer cyclical stocks that are seen as particularly vulnerable to higher rates.

The Vix index, a measure of expected volatility in the S&P 500, rose above 30, above its long-run average of about 20, indicating market stress.

The core PCE index, the Fed’s preferred measure of inflation, rose an annual 5.2% in January, its quickest gain since 1983.

US durable goods orders rose 1.6% in January, beating forecasts for a 0.8% increase.

Europe

The FTSEurofirst 300 dropped 1.5% over the week. Europe is seen as being particularly vulnerable to the conflict in Ukraine as it relies on Russia for about a quarter of its oil and more than a third of its gas.

The EuroStoxx 600 index hit its lowest point since May last year, falling into a technical correction, before rallying strongly on Friday.

The IHS Markit eurozone composite purchasing managers’ index increased to a five-month high of 55.8 in February from 52.3 in January. Service sector activity rebounded to 55.8 in February as pandemic-restrictions were eased, while manufacturing activity eased slightly to 58.4 although production gains improved as a result of rising demand and fewer supply bottlenecks.

The European Commission’s economic sentiment indicator increased to a three-month high of 114 in February as many coronavirus-related restrictions were lifted.

The German economy contracted by 0.3% on the quarter in the last three months of 2021, much less than initial estimates of a 0.7% fall.

Japan

The Nikkei 225 slumped 2.4% over the week.

Emerging Markets

After recognising two Moscow-backed separatist regions in eastern Ukraine, Vladimir Putin directed Russian troops to enter the two regions, before later extending the invasion to the whole of Ukraine. The invasion prompted a new refugee crisis as thousands of civilians left for Poland and Hungary.

Russia’s stock market fell sharply as a result, dropping a third in US dollar terms.

S&P Global cut Russia’s credit rating to “junk” status.

Bonds

The yield on the 10-year Treasury bond rose 6bps over the week to close at 1.99%, while the yield on the 10-year German Bund rose 4bps to 0.23% as European bonds were hit by the prospect of higher gas prices in the bloc exacerbating record-high inflation levels.

Currencies

The Russian rouble hit an all-time low against the US dollar.

Commodities

Brent crude surged to almost $106 a barrel, breaching the $100 level for the first time since 2014, on news that Russia had invaded Ukraine. European natural gas prices soared by almost 70%.

Wheat prices touched a 13-year high on the threat of supply disruptions. Russia and Ukraine together account for a third of the world’s wheat exports, a fifth of its corn trade and almost 80 per cent of sunflower oil production.

Aluminium rose to a record high of $3,449 a tonne. Russia is a big producer of aluminium as well as copper, nickel, platinum and palladium.

Gold rose above $1,900 per troy ounce.

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Image by Gerd Altmann from Pixabay