WeekWatch -‘Volatility continued to rip through global markets last week with commodities in particular having an eventful week’ March 22
Volatility continued to rip through global markets last week with commodities in particular having an eventful week.
In the UK, equities had a positive week with the FTSE100 climbing by +2.4% and the FTSE250 by +4.2%. Investors were likely buoyed by the announcement from the Office for National Statistics (ONS) revealing UK GDP grew by 0.8% in January – putting it above pre-COVID19 levels. Of course, these figures were measured before the Ukrainian crisis and this, combined with a “cost of living crisis” led Paul Dales, Chief UK Economist at Capital Economics to say January’s data would be “as good as it gets for this year.”
Looking at Europe, the major indexes all benefitted from the retreat in oil prices last week, with the German DAX and French CAC40 rising by +4.1% and +3.3% respectively.
Investors and fund managers are having to contend with rapidly changing circumstances, with little ability to control or predict further developments in Ukraine. The past week has seen further sanctions introduced against Russia by the West, including against Chelsea’s current owner Roman Abramovich. Eric Black, Research Analyst at Sands Capital said: “We know that in times of uncertainty, it is important to maintain focus on the long term and on finding the best growth businesses, benefiting from secular trends around the world. Because of the geopolitical risks exacerbated by the invasion, we no longer view Russia as investable for Western-based, long-term investors.”
Across the Atlantic, the tech heavy NASDAQ index slipped into bear market territory, having fallen by more than -20.0% from its recent high. The broader S&P500 meanwhile declined by -2.9%.
US inflation data for February, released last week, reached 7.9% – the highest rate since 1982. Perhaps unsurprisingly, increasing energy prices were the biggest contributor. Ian Shepherdon, chief economist Pantheon Macroeconomics, noted that, although rates stayed below 8%, his expectations are that “it will break that barrier quite comfortably in March, hitting 8.2-to-8.4%. That will be the peak, though, and we expect the rate to be down to 5.5% by September.”
Oil prices ultimately closed the week in negative territory; however, this masked a wild ride that saw a barrel of Brent Crude topping $139 on Monday as Russia intensified its attacks in Ukraine. Comments from the Emirati oil minister suggesting that OPEC should ramp up production prompted a sharp retreat in the price and, whilst those comments were later rolled back, Brent finished the week -4.7% lower at $112. Elsewhere, Nickel trading was suspended in London after the price more than doubled on Tuesday to $100,000 a tonne due to fears over supply challenges. Nickel is a vital component in the manufacture of stainless steel and batteries for electric vehicles.
Rising commodity prices are leading many to fear the return of stagflation – a term to describe a period of rising inflation matched with slow economic growth and relatively high unemployment.
Arnab Das, Global Market Strategist for Invesco said parts of the world economy would experience some form of mild stagflationary shock, but the impact of this would be spread unevenly. “Europe is closer to the epicentre of the [Russia/Ukraine] conflict and the crisis. It’s closer to the epicentre of the stagflation problem if there is one. The US is relatively removed.” However, major emerging market energy and commodity importers such as India and Turkey could also have “something closer to stagflation,” he added.
Concerns over growth prospects for the economy are leading to challenging debate when it comes to scheduled increases to National Insurance rates in April. In the same month the UK’s energy price cap is due to increase by 54%. With costs elsewhere also rising, pressure is mounting on the Government to act to ease these concerns.
Last week, MPs accepted a non-binding motion calling on the Government to scrap the National Insurance rise. Speaking to MPs, Shadow Chancellor Rachel Reeves told the House of Commons: “What is happening in Ukraine will have a cost of living effect here at home, too. When the facts change, so should your policies. People cannot afford ministers to carry on regardless of worsening circumstances.”
Looking ahead, this week the Bank of England hosts its monthly monetary policy meeting where it is expected to raise the base rate once again, this time by a further 25bps to 0.75%. This will only increase the pressure on Rishi Sunak when he releases his Spring Budget, due on the 23 March.
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