Markets volatile as Russia invades Ukraine

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Russia’s invasion of Ukraine sparked heightened stock market volatility and a flight to safe-haven assets last week

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1 March 2022 | 5 minute read

Russia’s invasion of Ukraine sparked heightened stock market volatility and a flight to safe-haven assets last week.

Shares in Europe declined as the crisis led to increased uncertainty and fears of higher inflation. The pan-European STOXX 600 fell 1.6% and Germany’s Dax slumped 3.2%. The FTSE 100 slipped 0.3%, with a rebound on Friday helping to limit losses. Markets in Asia also fell. Japan’s Nikkei 225 shed 2.4%, China’s Shanghai Composite lost 1.1% and Hong Kong’s Hang Seng plunged 6.4%.

In the US, the S&P 500 slumped on Thursday to nearly 15% below its peak at the start of the year, putting it firmly in correction territory. A sharp rally on Friday meant it ended the week up 0.8%, as Western sanctions proved to be less severe than expected, especially in relation to Russia’s energy sector. The Nasdaq finished the week up 1.1% while the Dow was largely flat.

Last week’s market performance*

  • FTSE 100: -0.32%
  • S&P 5001: +0.82%
  • Dow1: -0.06%
  • Nasdaq1: +1.08%
  • Dax: -3.16%
  • Hang Seng: -6.41%
  • Shanghai Composite: -1.13%
  • Nikkei: -2.38%

*Data from close on Friday 18 February to close of business on Friday 25 February.
1 Closed Monday 21 February

Sanctions-hit rouble plunges to record low

The Russian rouble plunged to a record low on Monday (28 February), sliding 28% versus the US dollar, after countries around the world imposed sanctions on Russian politicians, officials, oligarchs, banks and companies. Several countries said they would block Russia’s central bank from deploying its international reserves in a way that undermines the impact of sanctions, and some Russian lenders are being removed from the SWIFT financial messaging system for international payments.

The tougher sanctions and lack of progress in the Russia-Ukraine ceasefire talks led to another volatile day for stocks. The FTSE 100 managed to pare some of its earlier losses to close down 0.4% on Monday, while Germany’s Dax slid 0.7%. Over in the US, the S&P 500 and the Dow slipped 0.2% and 0.5%, respectively, whereas the Nasdaq managed a 0.4% gain.

UK and European indices were mixed at the start of trading on Tuesday as the military fight in Ukraine intensified.

Wall Street’s ‘fear gauge’ soars

A key measure of stock market volatility surged to its highest level in a year last week, as Russia’s full-scale invasion of Ukraine gave already anxious investors the jitters. According to FactSet, the CBOE Volatility Index – otherwise known as the ‘fear gauge’ on Wall Street – jumped to 36.74 during the day on Thursday, well above its long-term average of about 20.

CBOE SPX Volatility VIX – price index

Source: Refinitiv Datastream

Yields on core eurozone bonds and UK gilts also fell as the invasion drove a flight to safety (bond prices and yields move in opposite directions). Longer-term US Treasury yields declined for much of the week, but then rose as US stocks rallied on Friday.

US core PCE inflation soars

Last week saw the release of some important economic data, although this paled in comparison to the events in Ukraine. In the US, a key inflation measure showed prices rose at their fastest rate in nearly 39 years. The core personal consumption expenditures (PCE) price index, the Federal Reserve’s primary inflation gauge, rose 5.2% in January from a year ago. Including food and energy prices, the headline PCE was up by 6.1%, the biggest increase since February 1982.

Despite this, consumer spending in the US accelerated faster than expected, increasing 2.1% month-on-month in January. This was above the 1.6% estimate and came after a 0.8% decline in December. The increase was reflected in stronger orders for durable goods, which rose by 1.6%, double the expected 0.8% gain.

US economy rebounds from Omicron

Manufacturing and services activity in the US rebounded in February as virus containment measures, tightened to fight the Omicron wave, were scaled back. IHS Markit’s flash composite output purchasing managers’ index (PMI) rose to 56.0 from an 18-month low of 51.1 in January. Services firms led the rise, although manufacturers also registered a stronger increase in output, buoyed by a slight easing of supply bottlenecks.

“With demand rebounding and firms seeing a relatively modest impact on order books from the Omicron wave, future output expectations improved to the highest for 15 months, and jobs growth accelerated to the highest since last May, adding to the upbeat picture,” said Chris Williamson, chief business economist at IHS Markit.

However, inflationary pressures intensified in February, with the rate of input price inflation quickening from January’s ten-month low, driven by higher raw material, transport and wage costs. Global shortages of raw materials and lingering supply chain disruptions were again cited, albeit less so than in prior months. Meanwhile, prices charged for goods and services in the US rose at a record pace as companies continued to share additional cost burdens with customers.


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