7th March 2022.

In addition to the furthering of sanctions from Western governments against Russia, we’ve seen many household names cut ties with Russia over the last week. John Lewis and Waitrose will stop selling Russian products, Microsoft will suspend new sales in Russia, Nike and Ikea are to close Russian stores as sanctions bite, BP announces its intentions to exit its holding in Rosneft (a state owned Russian oil explorer) and has already resigned its nominated directors from its board, Shell intends to exit joint ventures with Gazprom and related entities, the list is almost endless. Additionally, Sainsbury’s has renamed their savoury dish Chicken Kiev to Chicken Kyiv in solidarity with Ukraine, switching the Soviet-era name for the country’s capital, for the Ukrainian version.

We are seeing governments, populations, companies all coming together in support for Ukraine, united against the invasion of Ukraine in a way that Russian President Vladimir Putin would not have foreseen. Let’s not forget, this is very much a war driven by Putin, with much of the Russian population set against the invasion of the Ukraine. We are beginning to see the influence of Putin wane with the Russian public, with an unprecedented 4,300 Russians detained at anti-war protests in Moscow amongst other major Russian cities. Protestors were heard chanting “no to war” and “shame on you”, in addition to defacing a mural of Putin himself… protests of which have been unheard of under the Putin regime!

Over the week, markets have again been driven by the situation in Ukraine in one way or another. We’ve seen volatility driven by uncertainty – whilst history shows periods of market volatility are not permanent, and we believe markets are well placed for strong, long-term equity performance, we understand that they are not necessarily a comfortable place to be.

However, markets saw some fleeting relief in the middle of the week, as the chair of the Federal Reserve, Jay Powell, confirmed his support for a 0.25% increase in interest rates, not an aggressive 0.50% rate rise as many economists forecast, and markets had previously priced in. Further to these comments, Powell citied caution – that the Fed will be monitoring the implications of the war in Ukraine on the economy. This statement reaffirms what global central banks have said all along, that they would be market fluid and data dependent, something the market has been blind to. This will likely be supportive for equities over the longer term.

Powell’s suggestions of a less severe interest rate increase come ahead of the Federal Open Market Committee meeting later in the month, when the rate is actually decided. So why tell us now? Powell has set market expectation, much like telling your children now -who might be expecting a few large Easter eggs – that the Easter bunny may be wary of their sugar intake this year, and perhaps a packet of mini eggs might suffice.

As we have said previously, central banks want to tackle inflation, and we will see interest rates rise but at a slow and steady pace. They’ll likely also continue to be mindful of the growing sanctions in Russia, with US President, Joe Biden, over the weekend continuing to weigh up the implications of the US banning Russian oil imports ahead of allies. Ongoing talks with the Venezuelan government are progressing with a view that current embargos could be removed to fill some of the supply gaps Russian oil sanctions would introduce.

This market relief was broadly spread on Wednesday, as markets started to price in fewer interest rate increases in the US, but also across the pond in the UK and Eurozone too. After the event, markets turned their attentions back to the situation in Ukraine, and whilst markets ended the week lower, the interest-rate outlook is bright for the long-term outlook for equity markets.

We now look towards Thursday (10^th) when we will see the European Central Bank announce its March policy decision. In the coming days we will also see Eurozone Q4 GDP, US and German inflation for February, UK Industrial Production for January and South Korea elect a new president, with the incumbent leader limited to a single term.

The Investment Management Team