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LGT Navigator: Triple summit in Brussels emphasizes unity of the West

March 25, 2022

One month after Russia's invasion of Ukraine, the West is trying to influence the Kremlin through demonstrative unity and strength. At the special summits of the G7, the EU and NATO in Brussels, on the one hand, further sanctions were decided or further ones were envisaged, and on the other hand, the military position, especially in Eastern Europe, is being upgraded. The EU remains divided on a complete embargo on Russian oil and gas. On capital markets, the nervousness remains correspondingly palpable, and Moscow's order to accept all gas deliveries only in rubles is causing some unrest on the energy markets.

Triple summit in Brussels emphasizes unity of the West

On stock markets, the ongoing war in Ukraine remains the dominant theme, but investors repeatedly take advantage of periods of weakness to buy. Stock market sentiment was supported by slightly weakening oil prices. In view of the combination of war, high commodity and energy costs and rising interest rates, volatility is likely to increase again soon. Yesterday, stock indices in New York were able to gain and the Dow Jones Industrial closed +1% higher at 34'707.94 points. The S&P 500 went +1.43% higher at 4'520.16 points from trading and on the Nasdaq, indices yesterday even gained about +2.2%.

No support offered latest data from the American industrial sector. Thus, orders for durable goods in February fell more sharply than expected. Orders fell monthly by -2.2% – the sharpest decline since April 2020 – while analysts had forecast on average a minus of -0.6%.

US government bonds trended slightly weaker and the yield of ten-year Treasuries is currently quoted at around 2.37%. Meanwhile, in Asia, stock markets showed no consistent picture at the end of the week.

With excitement, the monthly business survey of the Munich-based economic research institute Ifo is expected today.

Triple summit in Brussels

As a conclusion of the special summits of the EU, the G7 and NATO can probably be highlighted an emphasized unity and will to find a joint solution to the conflict with Russia. For its part, the EU decided on the occasion of its special summit to set up a solidarity fund for Ukraine. The funds are to be used for the rearmament and reconstruction of Ukraine. The EU has not yet been able to agree on a possible complete embargo of Russian energy supplies, mainly because of resistance from Germany.

The G7 announced that it would impose punitive tariffs on Russian goods to further isolate Moscow from the global economy and increase pressure on the Kremlin. Russia is also to lose most-favored-nation status under World Trade Organization (WTO) rules. In a joint statement, the G7 emphasized a broad coalition.

At the special NATO summit, Ukraine was promised further military assistance, including in the form of equipment to protect against biological, chemical, or nuclear attacks. NATO Secretary General Jens Stoltenberg stressed that “any use of chemical or biological weapons by Russia would entail serious consequences.” For his part, US President Joe Biden stressed that the 30 countries of the military alliance were “strong and united” in the face of Russia's war of aggression against Ukraine. The joint statement said NATO would significantly strengthen the deterrence and defense posture and further develop the full range of ready forces and capabilities.

SNB maintains negative interest rate, but assumes higher inflation

As expected, the Swiss National Bank (SNB) left its key interest rate unchanged at a record low of minus 0.75%, citing the significant economic risks posed by the war in Ukraine and the impact on energy markets. In its baseline scenario, the SNB expects the global economy to continue to recover despite the geopolitical uncertainties. However, if the conflict escalates further and sanctions against Russia are tightened, this will significantly worsen the outlook. A worsening shortage of raw materials could also increase inflation in Switzerland and lead to second-round effects. In its current forecasts, the SNB assumes an annual inflation rate of +2.1% in the current year. At the end of 2021, only 1% was still assumed. Overall, however, the SNB still expects inflation to be temporarily high, and over next year inflation should then ease again to +0.9%. However, the SNB stressed that its new inflation forecast was subject to considerable risks.

Norway's central bank follows up with further interest rate hike

The Norges Bank in Oslo has raised its key interest rate again by a quarter of a percentage point to +0.75% against the backdrop of accelerating price and wage inflation. It is also holding out the prospect of another rate hike by June. In September 2021, the Norwegian central bank became the first major Western central bank to raise interest rates since the outbreak of the corona pandemic. By the end of 2023, the central bank now forecasts a key interest rate of around +2.5%, compared with the previous rate path forecast of +1.75%.

Ukraine war weighs on outlook for European companies

According to the purchasing managers' surveys compiled by S&P Global (formerly IHS Markit), corporate sentiment in the eurozone countries deteriorated significantly in March against the backdrop of the war in Ukraine. The Purchasing Managers' Index for the private sector (PMI Composite) slipped from 55.5 to 54.5 points in March (consensus 53.8).

In the UK, the sentiment of the companies surveyed remained virtually unchanged in March, despite the geopolitical uncertainties. The corresponding purchasing managers' index weakened by only 0.2 points to 59.7 (consensus 57.5). According to S&P Global, the dismantling of the pandemic measures helped to offset the headwinds from the Ukraine war, Brexit and rising inflation.


Economic Indicators March 25

MEZ Country Indicator Last period
08:00 UK Retail Sales (February, m/m) +1.9%
09:00 ESP GDP Q4 (q/q) +2.0%
10:00 GE Ifo Business Climate Index (March) 98.9
10:00 IT Business Climate (March) 113.4
10:00 IT Consumer Sentiment 112.4
15:00 US Consumer Confidence (March) 59.7
15:00 US Pending Home Sales (February) -5.7%


Earnings Calender March 28

Country Company Period
GE BASF Investor Day


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Source: LGT Bank (Switzerland) Ltd.

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