Investors experienced fresh market volatility towards the end of February as global financial markets reacted to Russia’s invasion of Ukraine and widespread government sanctions imposed on Russian financial institutions and oligarchs.
- Inflationary pressures intensify in the US and Europe
- Oil price breaches US$100pb
- US federal funds rate set to rise in March
Ukraine crisis rocks financial markets: investors experienced fresh market volatility towards the end of February as global financial markets reacted to Russia’s invasion of Ukraine and widespread government sanctions imposed on Russian financial institutions and oligarchs. European Commission President Ursula von der Leyen warned: “These sanctions will suppress Russia's economic growth; increase the borrowing costs; raise inflation; intensify capital outflows; and gradually erode its industrial base”. The Bank of Russia raised its key interest rate from 9.5% to 20% in a move designed to support the tumbling rouble.
“Americans’ budgets are being stretched in ways that create real stress at the kitchen table” (President Biden)
Oil price surges: share prices plummeted amid fears over the impact of the conflict: the Dow Jones Industrial Average Index fell by 3.5%, while the Dax Index dropped by 6.5% and the Nikkei 225 Index posted a 1.8% decline. The price of Brent crude oil rose to its highest level since 2014, breaching US$100 per barrel. The conflict is expected to disrupt raw material supply chains, which will stoke existing inflationary pressures.
Inflationary pressures intensify in Europe: the eurozone’s rate of inflation accelerated from 5% in December to reach a record high of 5.1% in January, fuelled by surging energy costs. In comparison, Japan’s rate of consumer price inflation increased for a fifth consecutive month during January, rising at an annualised rate of 0.2%. Japan posted its first calendar year of positive economic growth since 2018 during 2021. The country’s economy expanded by 1.7% over 2021, growing at an annualised rate of 5.4% during the fourth quarter.
US consumer sentiment reaches decade low: the rate of consumer price inflation in the US reached its highest level since February 1982 during January, rising by 7.5% year on year. President Biden commented: “Today is a reminder that Americans’ budgets are being stretched in ways that create real stress at the kitchen table”. Widespread concerns over the impact of soaring inflation drove down US consumer sentiment to its lowest level in a decade during February, according to an index published by the University of Michigan.
Fed expected to tighten in March: the US Federal Reserve (Fed) is widely expected to raise its key federal funds rate at its March meeting. Minutes from the Federal Open Market Committee’s (FOMC’s) January meeting indicated that tightening would “soon be appropriate”, although the scale and pace of rate increases will be informed by economic and financial developments.
To view the series of market updates through February, click here
