OUTLOOK FOR UKRAINE REMAINS TURBULENT AS THE UK BRACES FOR IMPACT OF STORM EUNICE

OUTLOOK FOR UKRAINE REMAINS TURBULENT AS THE UK BRACES FOR IMPACT OF STORM EUNICE

This week the country braces itself for a storm; not the constitutional storm of the heir to the throne being investigated for corruption or his brother settling a sexual assault case out of court, not the geopolitical storm of possibly the first major invasion in Europe since the Second World War, or even the various political storms surrounding the prime minister. Instead, we get to talk about the weather and an actual storm, with winds forecast to be their highest since the infamous 1987 gale whose damage can still be seen in missing trees and broken hedgerows.

1987 also came with a market crash. The US Stock market sold off 35% in that same month with Black Monday coming the day before winds hit the UK. Storm Eunice has also been heralded by a sharp correction in US equities, but as the latest market fall was only 10% let’s hope the impact of this week’s storm is also of a much smaller magnitude.

GLOBAL:SHIFTING NEWS ON UKRAINE CAUSES MORE VOLATILITY

It has been another volatile week for global equities as the standoff between Russia and Ukraine and its western allies continues. Asset prices have risen and fallen as the tone of diplomatic exchanges has moved from conciliatory to aggressive and back and each side has accused the other of disinformation causing investors to move from positive to extremely defensive very quickly.

US tech stocks have seen some of the biggest moves, rising faster than most developed equities at the beginning of the week on news of further diplomatic efforts, but falling sharply towards the end of the week on the news of skirmishes in Eastern Ukraine and President Biden’s warning that an invasion was still imminent. European equities have also seen some dramatic single day movements and developed market equities are all set to close the week lower. In contrast, major government bonds have been steadier this week, with UK gilts rising in value.

UK: CPI EXCEEDS EXPECTATIONS TO HIT HIGHEST LEVEL SINCE 1992

The UK Consumer Prices Index reached 5.5% in January and remains considerably above the Bank of England’s 2% inflation target. The main contributors were transport costs and housing and household services, although transport costs are showing signs of slowing. The BoE has predicted inflation will rise above 7% in April 2022 when the UK’s energy regulator Ofgem increase their default energy tariff price cap. Retail sales have remained robust as figures this week show sales increased 1.9% in January reaching their highest level since the reopening of non-essential stores last April.

Some economists have predicted that high inflation together with strong labour market increases the likelihood that the BoE will continue to rise interest rates more aggressively. However, data out this week shows that despite record job vacancies inflation outpaced wage growth in the final quarter of 2021. Average weekly earnings grew at an annual pace of 3.7% but rising inflation caused overall real wages to fall 0.8%.

COMMODITIES: OIL PRICES EASE DESPITE RUSSIA TENSIONS

Oil prices also had another volatile week as ongoing concerns about the tensions between Russia and Ukraine drove prices up at the start of the week. The international benchmark Brent Crude rose to $96 per barrel to reach its highest level since 2014. However, prices started to decline following reports that Opec+ is working to shape a deal that will revive the 2015 Iran nuclear deal that could potentially bring back 1 million barrels of oil a day back into the market.

The prospect of Iranian oil returning to the market outweighed the fears of potential supply- chain disruptions from a conflict between Russia and Ukraine and Brent Crude has fallen to $91 per barrel since. Although oil prices are declining, some analysts have predicted that they will hold between $90 to $100 per barrel as geopolitical uncertainties and a tight global market, driven by supply-chain restrictions and demand recovery, continue to keep energy prices elevated.