The Russian invasion of Ukraine continued this week, causing Western countries and their companies to implement harsher sanctions and embargoes on the Eastern European country. The United States, European Union and United Kingdom made plans this week to swiftly phase out imports of Russian energy products, which sent the oil price to $132 a barrel – a 14 year high - before settling above $110 (+44.54% YTD). The United States was the first to move on their plans, banning the import of Russian crude and other energy products while European nations, which are much more reliant on Russian energy imports, implemented less stringent measures. These moves, coupled with Western countries’ plans to cancel normal trading relations with Russia should put additional pressure on an already damaged Russian economy. On Friday, Russian President Vladimir Putin said there had been some progress in Moscow's talks with Ukraine, but provided no details.
U.S. inflation came back into the spotlight this week, with February’s U.S. Consumer Price Index coming in at a fresh 40-year high of 7.9% year over year. Although this most recent print came in line with market expectations, Americans remain pessimistic about their financial future, with the University of Michigan’s preliminary gauge of consumer sentiment dropping more than expected in March to 59.7, a new decade low. However, the U.S. Federal Reserve is still on track to raise rates next week for the first time since December 2018, as it attempts to rein in inflation and improve economic stability.
Sticking to inflation, the European Central Bank (ECB) has expressed concerns over the Ukraine situation and its potential impact on Euro-area inflation expectations. Christine Lagarde has stressed that the ECB would be “data dependent” when addressing the timing of the first rate increase, however, given the Russian-Ukraine conflict and its ability to drive up Euro-area inflation expectations, she announced that the ECB could end its asset purchase program in the third quarter, rather than at the end of the year.
China has been battling its biggest Covid-19 wave since the early days of the pandemic, for the first time in two years, China's daily Covid cases are over 10,000. The spike in cases has forced China to lockdown Changchun, a northeastern city of nine million people. In other news, the U.S. Securities and Exchange Commission (SEC), on Thursday, identified five Chinese companies for potential delisting from U.S. exchanges for failing to meet audit requirements. The market reacted to the news, sending U.S.-listed Chinese stocks lower, however, on Friday, talks between Chinese and U.S. regulators over cooperation on audit and regulation were reportedly sounding more positive.
Major indices’ movements were mixed after another volatile week fuelled by the war in Eastern Europe. U.S. indices dropped this week as risk-off sentiment increased, consumer staples stocks underperformed as Coca-Cola, McDonalds, and other food and consumer products makers announced that they were suspending business in Russia. The S&P 500 index fell -2.92%, while the Dow (-1.99%) and Nasdaq (-3.53%) also ended the week in the red. Stocks in Europe rebounded after last week’s selloff, with the Euro Stoxx 50 up 3.68% and the FTSE 100 up 2.41%. Asian indexes fell, with the Nikkei 225 down -3.17% and Shanghai Composite down -4.00%. Brent crude managed a weekly decline, ending at $112.42 per barrel, while Gold (+0.91%) held up.
Market Moves of the Week
South African Gross Domestic Product (GDP) rebounded in Q4 of 2021 to +1.2% qoq, in line with consensus, up from -1.7% qoq in Q3 2021. Full-year (2021) GDP grew 4.9%, its fastest pace in 14 years, rebounding from a coronavirus-induced contraction the year before. This was the biggest increase since 2007, the annual expansion beat Bloomberg estimates, as well as the National Treasury’s forecast in its annual budget last month.
Cilo Cybin, South Africa's first and only company with a license to grow, process, and pack cannabis, has just introduced its first oil-based cannabinoid product range, two months ahead of its listing on the JSE. Its products are said to be the country’s first CBD products to use a Self-Emulsifying Drug Delivery System (SEDDS), which increases efficacy by up to 10 times.
On Tuesday, Eskom executives warned South Africans that Russia’s invasion of Ukraine will have a knock-on effect on Eskom and hit electricity supply in South Africa. The increase in oil and gas prices still needs to be accounted for by Eskom, but Chief financial officer Calib Cassim stated that the power utility cannot absorb these additional costs by itself. This comes at a time when Eskom is burning 9 million litres of diesel a day just to keep the lights on.
The JSE ended the week lower (-1.40%) driven by a selloff in property and resources. Miners and energy underperformed, as the relentless rally in commodity prices showed signs of cooling. However, the Rand strengthened this week to end at USD/ZAR 15.05.
Chart of the Week
The London Metal Exchange suspended trading in its nickel market after an unprecedented price spike, caused initially by investor concerns about supplies from Russia, left brokers struggling to pay margin calls against unprofitable short positions, in a massive squeeze that has embroiled the largest nickel producer as well as a major Chinese bank. Source: Bloomberg