The deepening of the Ukraine conflict impacted stock markets hard in February. Global stocks dropped 2.6 percent (in USD terms), while global investment grade bonds lost 2.1 percent (in USD). Among the key topics were:
The assault on Ukraine, which raised the prospect of future escalation between the West and Russia, shook investor confidence. While the EU and the US avoided direct military engagement and continued to purchase Russian oil, they slapped broad sanctions on Russia that would have a negative impact on Western economy. Global markets sank for the second month in a row in February, but there was a slight comeback towards the end of the month. Stocks having a large exposure to Eastern Europe declined, while corporations in the oil, mining, and armaments sectors prospered. Brent oil exceeded $100 USD per barrel, the highest level in eight years, contributing to current inflation and reducing consumer purchasing power and confidence. Government bonds and precious metals were in high demand as safe haven investments, with gold surging beyond $1,900 USD. The Swiss franc outperformed other currencies as a safe haven currency.
Retail sales (+3.8 percent MoM), industrial output (+1.4 percent MoM), durable goods orders (+1.6 percent MoM), and existing house sales (6.5 million) were all high in January, although the labor market remained tight and inflation rose to 7.5 percent YoY. The FOMC minutes indicated the Fed’s desire to raise interest rates, but by the end of the month, the Ukraine crisis had surpassed interest rates as investors’ primary worry. So far, figures for February suggest that momentum is continuing – for example, the ISM Manufacturing PMI increased to 58.6 (from 57.6), and the ADP Employment Change increased by 475k. In politics, Biden increased pressure on Russia by increasing European sanctions, delivering budgetary aid to Ukraine, and deploying soldiers to eastern NATO nations.
As things stand, Russia’s invasion of Ukraine remains a key risk factor for markets, but the attention will now shift to how powerful the spring “reopening” will be. Most investors are concerned that sky-high gas and electricity costs would trigger a reaction, reducing demand and resulting in decreased profitability. However, there are some possible good effects.
First, resolving the Ukraine conflict would eliminate a significant “known
Second, if the spring “reopening” continues throughout the summer, investors may strive to increase the market multiple and stock prices once again. Because the market may reduce expectations for the Federal Reserve’s rate rises.
Because the Tenjin crash signal is still operational, we shall maintain our defensive approach in the present scenario. In fact, Powell significantly reduced the market’s fear that he would overshoot and kill the growth outlook. The market will become less sensitive to the Russia-Ukraine dispute. Based on our market confidence level projection, our strategies will return to growth mode.
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