Week in Review: War Enters Second Month

U.S. equities climbed higher for a second consecutive week of gains, with the large-cap S&P 500 Index ending the week 1.8% in the green and the tech-heavy Nasdaq gaining 1.98%.

On Monday Federal Reserve (Fed) Chair Powell echoed a Federal Open Market Committee post-meeting statement, reiterating that interest rate hikes would continue until inflation is under control. If necessary, he said, the increases could be even higher than the quarter-percentage-point move approved at the meeting. Powell also addressed the Russian invasion of Ukraine, saying it is adding to supply chain and inflation pressures. This hawkish message spiked Treasury yields higher with the benchmark 10-year U.S. Treasury note jumping by roughly 35 basis points over the week reaching a high of 2.5% on Friday, investors are fearful the Fed may overplay its hand and end up slowing the economy.

It's been just over a month since Russia invaded Ukraine on Feb. 24. It is estimated that up to a $100 billion worth of Ukrainian infrastructure, buildings and other physical assets have so far been destroyed. According to the UN, more than 10 million people have been displaced by the conflict while casualty figures are hard to estimate.

On Friday Moscow signalled it was scaling back its military ambitions and that the first phase of its military campaign in Ukraine is over, and it will now focus on the eastern Donbas region. "The combat capabilities of the Ukrainian armed forces have been substantially reduced, which allows us to concentrate our main efforts on achieving the main goal: the liberation of Donbas," said Sergei Rudskoy, head of the General Staff's main operations administration. However, by Saturday intense fighting was reported in a number of places suggesting there would be no swift let-up in the conflict.

Ukraine's President, Volodymyr Zelensky, said his troops had landed "powerful blows" on Russia and called on Moscow to recognise the need for serious peace talks.

Shares in Europe weakened amid the ongoing Russian invasion and the prospect of tighter monetary policy. In local currency terms, the pan-European STOXX Europe 50 Index ended 0.89% lower. In the UK, inflation hit a 30-year high in February driven by soaring household energy bills and petrol prices putting pressure on the Bank of England to continue raising interest rates. The consumer price index rose an annual rate of 6.2%—exceeding the median forecast of 6%.

The U.S. said it will work with international partners to supply the EU with an additional 15 billion cubic meters of liquified natural gas this year, with the aim of reducing the bloc’s dependence on Russia. It comes amid heightened concern that energy-importing countries continue to top up President Putin’s war chest.

Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 4.93%. Sentiment was boosted by expectations of further economic stimulus and reassurances from the Bank of Japan (BoJ) that it will maintain very accommodative monetary policies. Chinese markets fell amid delisting fears for U.S.-listed Chinese companies arising from a simmering bilateral dispute over auditing standards. For the week, the benchmark Shanghai Composite Index ended 1.2% in the red.

Market Moves of the Week

South Africa is close to reaching a five-year target for new investment, President Cyril Ramaphosa said on Thursday at the country’s fourth Investment Conference in Sandton. The conference, which in part aims to sell foreign companies on South Africa’s potential, brought in a total of 332 billion rand ($22.83 billion), bringing the total of new investment since 2018 to 1.2 trillion rand.

On Wednesday night the President announced that restrictive COVID-19 regulations that have weighed on the nation's struggling economy for two years would be removed, with the national state of disaster also to end soon. Major changes included the removal of a requirement to wear masks outdoors, though these would remain compulsory inside public buildings and on public transport and that travellers entering South Africa will need to show proof of vaccination or a negative PCR test not older than 72 hours.

The South African Reserve Bank (SARB) hiked its repo rate by 25 basis points to 4,25% during the week. The 3-2 (two members voting for 50bp hike) split among the MPC members came as a hawkish surprise. Headline CPI for 2022 was revised significantly upwards from 4.9% to 5.8% and there was an upward revision to the growth forecast from 1.7% to 2%. The MPC noted that it sees upside risks to its inflation forecast.

The JSE All-Share Index ended the week down 0.7%, with the financial (+1.57 %) and resources (+1.72%) sectors positive, against a weaker industrial sector (-4.00%) performance. By Friday close, the rand was trading at R14.53 to the U.S. Dollar.

WeeklyMovements

Chart of the Week

The Russian economy, and its citizens, have already been substantially hit by the significant sanctions imposed by the West and its international partners as well as a mass corporate exodus, with the Russian economy seen shrinking by 15% this year erasing 15 years of economic gains. The economic fallout is expected to be severe and long-lasting.

Russian Economy

Related Reading