Global Markets Update – Monday 28 March 2022

Gas Cooker

As the Russia/Ukraine war entered its second month, bond yields surged as the US Federal Reserve appeared to take a more aggressive stance towards raising interest rates.


The FTSE 100 gained 1.1% over the week.

The UK inflation rate accelerated to a 30-year high of 6.2% in February.

In his Spring Statement, Chancellor Rishi Sunak underwhelmed households suffering from a cost-of-living crisis when he failed to tackle soaring fuel bills. The chancellor raised the threshold at which National Insurance Contributions are paid and cut fuel duty by 5% for 12 months. He also pledged that the basic rate on income tax would be cut by 1% to 19% in 2024.

The Office for Budget Responsibility downgraded the UK growth outlook this year to 3.8% from 6% forecast in October after real household income dropped to its lowest level since records began in 1957.

The flash estimate of the UK composite purchasing managers’ index eased to 59.7 in March from 59.9 in February. Activity was supported by the strongest expansion in the service sector since last June with the index rising to 61.0 from 60.5 the previous month, supply shortages and escalating inflationary pressures amid the removal of all COVID-19 restrictions. However, manufacturing activity fell to a 13-month low of 55.5 in March from 58 in February due to supply shortages and escalating inflationary pressures.

UK retail sales in the UK unexpectedly fell 0.3% in February, compared to a 1.9% rise in January.

GfK’s index of UK consumer confidence fell to -31 in March, marking the lowest reading in 17 months as households tighten their belts amid surging inflation.

UK business sentiment dropped to a 17-month low of 71.4 in March, as rising fuel, energy and staff costs resulted in businesses charging their steepest prices since the index began in November 1999.


The S&P 500 rose 1.0% over the week.

After raising interest rates for the first time since 2018, Federal Reserve chair Jay Powell hinted that the US central bank is prepared to act more aggressively if necessary to keep a lid on price rises. Mr Powell said the Fed should move “expeditiously” towards tighter monetary policy. He also pushed back on concerns that this would cause a recession, citing episodes in 1965, 1984 and 1994 when the central bank slowed an overheated economy without prompting a sharp contraction.


The FTSEurofirst 300 closed the week with flat returns.

The Ifo Institute slashed its forecast for German GDP growth in 2022 to between 3.1% and 2.2%, from an earlier prediction of 3.7% as it warned higher prices would erode consumer purchasing power by €6bn in the first quarter.

The flash estimate of the eurozone composite purchasing managers’ index fell to 54.5 in March from 55.5. The outcome was better than had been expected given the Russian/Ukraine war. Manufacturing activity slid to a 14-month low of 57 from 58.2 in February amid supply bottlenecks, a drop in export demand and a surge in costs for parts and raw materials. Meanwhile, services activity slid to 54.8 from 55.5 in February as easing coronavirus-induced restrictions helped support tourism and recreation.

The US will supply the EU with an additional 15 billion cubic metres of LNG in 2022, on top of last year’s 22 billion cubic metres, with a target of increasing supplies further in future. The new total will represent around 24% of the gas currently imported from Russia.

Olaf Scholz, German chancellor, warned that banning Russian energy “would mean plunging our country and the whole of Europe into a recession”. Germany imports a third of its oil from Russia and more than half of its gas and coal. However, Germany vowed to end dependence on Russian gas by mid-2024. It also aims to be independent of Russian coal by this autumn and to cut its dependency on Russian oil by half by the end of this summer. The country’s ruling coalition announced a €16 billion relief package to ease the burden of rising energy costs, with measures ranging from a three-month fuel price cut to a temporary increase in the use of coal.


The Nikkei 225 jumped 4.9% over the week boosted by expectations of further economic stimulus and reassurances from the Bank of Japan (BoJ) that it will maintain very accommodative monetary policies.

Emerging Markets

Russian financial markets partly re-opened. Yields on the benchmark 10-year bond climbed as high as 19.7% in pre-market trading before settling back to 13.9%, roughly 170 basis points higher than their pre-invasion levels. Trading also resumed in 33 of the 50 stocks that make up the Russian equity benchmark, including Gazprom, Sberbank, Rosneft and VTB Bank.

Mexico raised interest rates by 50 basis points to 6.5%. The rate hike was announced by the country’s President Andrés Manuel López Obrado ahead of the official announcement, raising concerns about the independence of the central bank.


The Bloomberg Barclays Global Aggregate Index has lost more than 11% since its peak in January 2021, marking the heaviest pullback in the history of the index running back to 1990.

US Treasuries are on course for their worst month since November 2016 when Donald Trump won the US presidential election. The yield on the two-year note climbed to a three-year high of 2.2% this week, up from just 0.73% at the start of the year, marking the biggest quarterly rise in yields since 1984. The yield on the 10-year US Treasury note hit 2.5%, its highest since May 2019 as hawkish comments from Federal Reserve officials this week prompted big Wall Street banks to forecast a faster pace of interest rate increases.

In Germany, the 10-year Bund yield rose to 0.59%, its highest level since October 2018. The three-year yield turned positive for the first time since 2014 while two-year yields rose to their highest since mid-2015.

The “spread” on junk-rated US energy bonds fell below that of the broader US high-yield market — something that has not occurred on a sustained basis since 2014 when slump in oil prices sparked a wave of defaults among US energy exploration and production companies.


The Japanese yen hit a six-year low against the US dollar, reflecting the Bank of Japan’s caution towards raising interest rates.

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