RUSSIA FACES INTERNATIONAL CONDEMNATION AFTER UKRAINE INVASION

RUSSIA FACES INTERNATIONAL CONDEMNATION AFTER UKRAINE INVASION

This week Russian president Vladimir Putin launched a full-scale military invasion of Ukraine. Despite weeks of diplomatic efforts, Putin has decided that Ukraine’s relationship with NATO, his ambition to restore Russia’s influence to the heights of the Soviet era and his growing unpopularity at home are worth the human and financial cost of a war. The invasion caused a general flight to safety in financial markets and investors should expect much more volatility due to the rapidly changing situation.

Elsewhere, the economic situation in the UK is showing positive signs as Boris Johnson announced the end of all Covid restrictions in England. The all-important consumer services sector has seen particularly strong recovery amid evidence that high street retail sales are back above pre- pandemic levels. However, rising inflation remains a problem for consumer confidence and the invasion of Ukraine could also make consumers more cautious.

UK:JOHNSON ENDS RESTRICTIONS AS ECONOMIC ACTIVITY GROWS

UK business activity accelerated at its fastest pace since June 2021 as consumer services gained from looser pandemic restrictions and fading concerns about the Omicron variant of coronavirus. The latest IHS Markit composite purchasing managers’ index rose from 54.2 in January to 60.2 in February. The increase in output was led by a strong recovery in consumer spending on travel, leisure and entertainment. This was followed by Prime Minister Boris Johnson’s announcement to end all the remaining legal coronavirus restrictions in England, which further boosted the outlook for the UK economy.

Although businesses remain optimistic the latest consumer confidence report suggested that consumers have become more reluctant to spend due to rising living costs as the price of food, fuel and utility bills continue to rise in the UK. The consumer confidence index fell seven points to minus 26 in February as rising living costs hit morale, which was recorded before Russia invaded Ukraine.

GLOBAL: MARKETS IN TURMOIL FOLLOWING RUSSIAN INVASION

Russian president Vladimir Putin declared the invasion of Ukraine on Thursday which he justified as an operation to ‘de-Nazify’ Ukraine and ‘defend victims of genocide’. The event shocked many investors, as well as the people of Moscow, as Russia started what could be the largest conflict in Europe since the Second World War. The move came despite threats from major economies such as the EU, US and the UK warning to impose economic sanctions in retaliation to the invasion of Ukraine.

Markets were taken by surprise and equities around the world were rattled as a result. The MOEX Russia Index plunged, falling as much as 45% at pre-market trading, and the Russian ruble fell to 87 against the US dollar. The European bond market increased while the yield on the 10-year US Treasury declined below 1.9%. Oil surged and the international benchmark Brent crude reached $100 a barrel while gold rose to $1974 an ounce. However, despite the initial volatility, markets have recovered some of their losses since.

EQUITIES: ALIBABA’S SHARES HIT BY REGULATIONS AND COMPETITION

Chinese e-commerce company Alibaba reported its slowest quarterly sales in the fourth quarter of 2021 due to rising competition as well as the effects of Beijing’s regulatory crackdown on technology companies. The total revenue grew 10% to $38bn between October and December 2021 which is the lowest figure seen since the tech group had its first public listing in 2014. Alibaba’s chief executive Daniel Zhang said the results were a result of China’s slowing economic growth and sliding retail sales due to coronavirus as well as increasing competition from other e-commerce groups.

Alibaba’s shares have been losing value since November 2020 after the Chinese authorities first imposed regulations following claims of the company’s abuse of user data and monopolistic business practices. Shares fell a further 8% since the company announced its most recent profits. Other e-commerce groups, such as Pinduoduo and JD.com, have also seen their share prices falling since the government first started to impose regulations.