Monthly Market Roundup - March 2022 (covering February)

European markets fell in the wake of the Russian invasion of Ukraine. A sell-off in European and Russian stocks and shift into low-grade government debt meant that markets experienced a technical correction (-10% after a recent peak).

In Germany, where there’s a heavy reliance on Russian fuel supply, the Nord Stream 2 gas pipeline approval process was suspended. The Chancellor also announced a €100bn boost on military spending.

Inflation hit 5.1%, putting further pressure on the European Central Bank to tighten monetary policy (raise interest rates) later in the year, which it had previously ruled out. Though European business activity did expand in February, and the purchasing managers’ index rose to 55.8 in February, indicating growth.

Amid an already unstable, 30-year high inflation environment, the Russia-Ukraine crisis caused further volatility in UK markets last month. Among wider sanctions imposed on Russia, the UK has sanctioned Russian businesses and individuals in reponse.

Inflation reached 5.5% and the Bank of England (BoE) raised interest rates to 0.5% to control it. But GDP saw its strongest surge since World War II, as the economy continues it’s recovery from the 2020 pandemic hit.

The Prime Minister announced the end of all remaining Covid-19 restrictions in England, but warned that further waves could result.

US markets were also weakened by the Ukraine crisis. Brent crude and Western Texas Intermediate (WTI) oil prices hit highs of $100 and $95 a barrel respectively in the wake of soaring global energy prices.

Senior officials warned that the crisis could cause further inflation spikes, and headline Consumer Price Index (CPI) hit 7.5% supported more aggressive tightening. But the crisis could see the Federal Reserve (Fed) revise its number of previously announced rate hikes.

Negotiation talks between Ukrainian and Russian representatives though inconclusive, did provide some relief to US markets come the end of the month.

The Russian invasion of Ukraine spiked commodity prices in February, causing Asian markets to end down. New supply chain concerns were also raised as the Fed lean toward less aggressive tightening than previously indicated.

A fresh wave of Covid-19 cases (due to Lunar New Year migration), as well as geopolitical pressure,  meant Chinese markets underperformed. Markets in Hong Kong, Taiwan, India and Japan also ended  in the red.

Conversely, Australian markets were buoyed by the increased commodity prices. Miners, oil and gas producers and agriculture names all benefited from higher prices caused by supply concerns.

Like elsewhere, emerging markets were largely impacted negatively by the news of the Russian invasion. Unsurprisingly the Europe, Middle East and Africa (EMEA) region, particularly Russia performed worst – with the ruble taking a hit amid sanctions imposed by the West.

Latin American markets performed best, boosted by rising commodity prices due to supply chain disruptions and tighter inventories. Peru, Colombia and Mexico all posted solid gains.

EM Asia slipped, but commodity prices also buoyed Association of Southeast Asian Nations (ASEAN) markets, particularly Malaysia, Indonesia and Thailand.

Bond markets also experienced a negative month but the main driver here was ongoing inflationary pressure. Many now expect much more aggressive tightening¹ from central banks.[1]

There was some relief though toward the end of the month. The Ukraine crisis prompted a shift in sentiment which saw inflows into perceived safe-haven assets.[2]

Primary market volumes dropped sharply in February, which is not abnormal in periods of volatility and widening spreads. Issuance was less than expected, with sterling and euro volumes significantly down (€35.5 bn and £3.1bn respectively).