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Please see below article received from Brooks Macdonald yesterday afternoon, which details the impact that Russia’s ongoing invasion of Ukraine is having on markets and economies.

The humanitarian impact of the Ukraine crisis hardens political resolve towards sanctions on Russian energy imports

With US Secretary of State Blinken confirming that the US and allies were discussing bans on Russian oil and gas, energy prices surged on Friday and over the weekend. This rapid increase has spread into equity market volatility with most major indices mirroring their Friday movements, falling further in today’s European session.

Price surges in the oil and natural gas markets hit equity market sentiment and muddy inflation forecasting

Russian oil and natural gas import sanctions were previously avoided by the US coordinated bloc due to disagreement from European allies. As the Ukraine war has continued and the severity of the humanitarian crisis has increased political pressure, a ban on Russian oil and gas has become increasingly possible. Adding to Blinken’s comments, Speaker Pelosi has said that the House of Representatives is exploring legislation on this topic to restrict payments into the Russian economy. One of the big questions is whether a release from the US’s Strategic Petroleum Reserves, or a softening of Iranian sanctions, could take some of the pressure off the dramatic moves within oil prices. With Iran being probed for its ties to Russia over the weekend, the latter may be delayed in the short term at least. In the interim, the oil price remains elevated and highly volatile.

US Consumer Price Index data this week is unlikely to cause the Fed to stray from a 25bp hike in March, however inflation remains the key data point in markets

The Ukraine crisis will dominate investor sentiment this week however we also have the release of the latest US Consumer Price Index (CPI) numbers, as well as the latest European Central Bank (ECB) meeting. US CPI is expected to increase to 7.9% year-on-year in the latest reading (from 7.5%)1 and the core reading (ex-energy and food) is expected to soften slightly from the previous reading. Market expectations were for CPI to begin to plateau in Q2 of this year before falling into the summer, but with the recent moves in energy prices we may well see an increasingly divergent story between US headline and US core CPI data. With Federal Reserve Chair Powell showing his support for a 25bp hike in March, it is likely that the bar to change path from that is reasonably high. In terms of central banks, we expect the ECB to reiterate caution and the need to retain price stability.

Inflation data will become increasingly difficult to read for markets and central banks, as the supply side impacts from COVID-19 will now mix with the sanctions and supply side issues from the Ukraine crisis, as well as the surge in energy prices. As ever, investors will listen closely to central bankers to understand how a short-term overshoot in the CPI numbers will be interpreted within the world’s major economies.

Please check in again with us shortly for further relevant content and news.

Chloe – 08/03/2022