Market Monitor - 25 February 2022
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Market Monitor – 25 February 2022

Russia’s invasion of its neighbour Ukraine has caused a huge sell-off in global stock markets this week. The sessions preceding Thursday’s military action had been marked by extreme volatility, with political leaders from Europe and North America announcing sanctions on Russian banks, businesses and oligarchs after Vladimir Putin’s government formally recognised eastern parts of Ukraine as independent territories on Tuesday.

But the dramatic escalation of the conflict in the early hours of Thursday morning saw massive falls in markets all over the world, as well as fresh surges in the price of oil and other commodities. In the short term, tough economic sanctions on Russia are likely to intensify the inflationary pressures currently being felt all around the globe. Europe in particular is a major buyer of Russia’s natural gas, and both Russia and Ukraine are significant producers of food for the rest of the continent.

Any cuts in supply – whether as a result of sanctions, military disruption or strategic decisions by Moscow – could clearly send prices higher. In the hours following the invasion, the price of Brent crude passed the $105-per-barrel barrier for the first time in more than seven years. The value of wheat futures, meanwhile, rose by 20%, and in London the price of aluminium – which Russia is an important producer of – hit record highs.
Aside from these economic impacts, investors also have to try to assess the less direct consequences of a standoff between Russia and NATO. For example, if the likes of the United States, the European Union and the UK are drawn into a protracted conflict over the course of 2022 – and possibly beyond – it could have a significant impact on wider consumer and business confidence and activity.

The US

On Wall Street, the Dow Jones Industrial Average ended trading on Thursday 2.5% down for the week so far, with the S&P 500 losing 1.4%. Shares in New York recovered to some extent from the losses incurred early on Thursday, with investors in America apparently taking the view that the economic impact of the Ukraine crisis is likely to be felt more acutely on the other side of the Atlantic.

The UK & Europe

In the UK, the FTSE 100 closed on Thursday 4% down for the week, at its lowest level since the Omicron wave of Covid-19 began in December 2021. The fact that shares in London have not been hit as hard as those across the eurozone is largely down to the greater importance of energy companies on the UK stock market: the likes of Shell and BP will benefit from rising oil prices – although the latter company’s 20% stake in Russian oil firm Rosneft makes it more vulnerable during the current crisis.
In Frankfurt, the DAX index ended Thursday’s session down 6.6% for the week, while France’s CAC 40 lost 5.9%. The steeper losses across the major European markets reflects the fact that they are more reliant on energy supplies from, as well as trade with, Russia. Eurostat figures published on Wednesday confirmed that eurozone inflation had ticked up to 5.1% in January1 , and further rises in the months ahead now seem a certainty in light of Russia’s actions.

Asia

In Asia, the Hang Seng index in Hong Kong slumped 5.8%, while Japan’s Nikkei 225 index of leading shares was 4.2% lower by Thursday’s close. Geopolitical issues aside, investors are again worried about potential interference by the Beijing government in China’s technology sector. Meanwhile, there are fresh concerns about Ant Group, the financial services firm whose IPO was cancelled by Chinese authorities in 2020.
February 18
February 24
Change (%)
FTSE 100
7513.6
7212.0
-4.0
FTSE All-share
4195.5
4015.8
-4.3
S&P 500
4348.9
4288.7
-1.4
Dow Jones
34079.2
33223.8
-2.5
DAX
15042.5
14052.1
-6.6
CAC 40
6929.6
6521.1
-5.9
ACWI
703.3
682.0
-3.0
Hong Kong Hang Seng
24300.3
22901.6
-5.8
Nikkei 225
27122.1
25970.8
-4.2
Note: all market data contained within the article is sourced from Bloomberg unless stated otherwise, as at 24 February 2022.
25 February 2022
Mark King
Mark King
Head of Investment Content
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