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LGT Navigator: Volatile markets and fragile sentiment

March 14, 2022

Events in Ukraine and the conflict between the West and Russia continue to set the tone on the financial markets. On Friday, statements by Russian President Putin, initially interpreted as positive, led to some optimism and subsequently to rising prices on the stock markets. By the close of trading, however, the short-term confidence on Wall Street had already evaporated. Investor sentiment is likely to remain highly tense due to ongoing geopolitical uncertainty and the consequences on the capital and commodity markets. The focus this week is now on the anticipated interest rate turnaround by the US Federal Reserve.

Volatile markets and fragile sentiment

Kremlin leader Vladimir Putin on Friday nourished hopes of a certain easing of tensions by speaking vaguely of “certain positive changes” in the talks with Ukraine. However, the last direct talks between the two foreign ministers had previously failed to produce any concrete results. On Europe's stock exchanges, the statements had initially provided some optimism. On the New York Stock Exchange, however, the Dow Jones Industrial then went -0.69% lower than the previous day at 32,944.19 points into the weekend and recorded a loss of around -2% over the week. The S&P 500 closed on Friday -1.30% lower at 4'204.31 points. Most under pressure were the technology indices on the Nasdaq, which had to give up about -2.2% before the weekend and thus lost almost -4% in the past week. In the bond market, meanwhile, the yield of ten-year US government securities quoted at just under 2%.

Asia's stock markets showed a mixed picture. While in Tokyo the prices tended upwards - the Nikkei 225 gains about +1% - the Hong Kong Hang Seng index recorded against the background of weak tech stocks a slump of almost -4%. A renewed Covid-19 wave in China, which could cause further disruption to global supply chains due to countermeasures, is currently also having a negative impact.

The focus on Wednesday evening is the anticipated first interest rate step by the Fed. Also eagerly awaited will be the latest assessment of the central bank's top policy makers considering a possible slowdown in the global economy as a result of the conflict with Russia. Interest rate decisions will also be made this week by the Bank of England (Thursday) and the Bank of Japan (Friday).

American consumers significantly more pessimistic

According to the latest survey results from the University of Michigan, consumer sentiment in the US deteriorated noticeably in March. On the one hand, the strong increase in the cost of living and, on the other hand, the war in Ukraine are depressing the mood. The consumer sentiment barometer fell from 62.8 to 59.7 points, its lowest level since the fall of 2011. It is worth noting that the private households surveyed now expect an inflation rate of +5.4% over the next year, which represents the highest level since 1981.

Further sanctions against Russia in preparation

The G7 countries want to increase the pressure on the Kremlin with further sanctions. For example, Russia is to lose its so-called "most-favored-nation" status or the benefits of Russia's membership in the World Trade Organization (WTO) are to be revoked. Furthermore, Russia is to be barred from G7 economies and the international to prevent Russia from receiving funding from, for example, the International Monetary Fund or the World Bank. A statement said the G7 were determined to hold Russia accountable for the “unjustified and unprovoked war.” The G7 represents the leading Western industrialized nations: US, UK, Germany (currently holding the presidency), France, Italy, Japan and Canada. The EU also wants to impose further sanctions against Russia. EU Commission President Ursula von der Leyen held out the prospect of a fourth package of sanctions that would further isolate Russia from the global economic system.

EU aims to be independent of Russian energy by 2027

The European Union is aiming for independence from Russian energy imports within the next five years. EU Commission President Ursula von der Leyen pledged at the EU summit in Versailles on Friday to reduce the EU's dependence on Russian gas, oil, and coal by 2027. By the end of March, for example, the Brussels executive wants to make a concrete legislative proposal for minimum filling levels for gas storage facilities so that they are 90% full by October each year at the latest. The EU imports about 90% of its gas consumption, of which more than 40% currently comes from Russia. In addition, about 27% of oil imports and 46% of coal imported into the EU come from Russia.


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