Please find below, an update on the ongoing negotiations between Ukraine and Russia and the impacts on markets, received from Brooks Macdonald, yesterday afternoon – 21/03/2022
- Global equities rallied last week as Ukraine negotiations continued, China hinted at state support and the Federal Reserve meeting concluded
- The Bank of England and Federal Reserve both increased interest rates last week, citing fears over inflation
- The Federal Reserve revealed robust economic growth forecasts despite the impact of inflation on the cost of living
Global equities rallied last week as Ukraine negotiations continued, China hinted at state support and the Fed meeting concluded
Whilst last week proved a very strong week for risk assets, this of course needs to be compared to the volatility of March in aggregate. Technology outperformed, with reports of Chinese state support and the Federal Reserve (Fed) meeting both boosting sentiment towards the sector.
Negotiations between Russia and Ukraine continued last week which helped buoy risk appetite. Last night, Turkey’s Foreign Minister suggested that a peace deal and ceasefire was possible assuming neither side changed its negotiating demands too dramatically. The starting point, that Ukraine will agree to be a neutral country and commit to not join NATO, appears to have softened Russia’s prior hard-line approach to talks. After reports broke that Russia had requested military and economic aid from China, China has been in the spotlight over its position on the Ukraine war. On Friday President Biden and President Xi Jinping discussed China’s position over a call and both sides concluded with hopes for a peaceful resolution which saw no further escalation. The latter comment may well allude to suggestions from US intelligence sources that nuclear sabre-rattling could recommence should the Ukraine war become protracted.
The Bank of England and Federal Reserve both increased interest rates last week, citing fears over inflation
After the Bank of England and Federal Reserve both hiked rates last week, we will hear from a steady stream of central bankers this week, giving us more colour on the content of the discussions. The Federal Reserve ‘dot plot’ of interest rate forecasts showed a wide disparity of views amongst the Fed members, suggesting the speeches this week won’t be running off a shared narrative. Fed Chair Powell will be speaking today as well as on Wednesday. The Bank of England warned on inflation and economic growth when it hiked rates last week, the US has taken a different approach, showing heightened inflation expectations alongside robust economic growth forecasts. How the Fed speakers address their expected resilience of the economy in face of tightening monetary policy and cost of living squeezes will be of particular interest.
The Federal Reserve revealed robust economic growth forecasts despite the impact of inflation on the cost of living
The Fed are likely to come under significant pressure over the next few weeks as many economists have criticised the bullish economic growth projections as disconnected from the reality of consumer demand. Should the bond market conclude that the Fed speakers’ belief in the Fed’s own economic growth numbers is less than universal, we could see an extension of the technology outperformance that we saw after meeting last week, as markets price in the risk that the Fed will need to blink in the face of slowing growth.
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22nd March 2022