Conflict in Ukraine continues to dominate the headlines. Financial markets remain exceptionally sensitive to any hints of diplomatic progress, with sentiment shifting by the hour. Meanwhile, investors must keep a weather eye on the interplay between economic growth, inflation and interest rates.
Last week’s performance – major stock markets
|Euro Stoxx 50
US: Warning signs from the bond market
US stocks ended the week broadly flat, with energy stocks lagging after President Biden authorised a record release of oil from the country’s strategic reserves, helping force the price of a barrel of oil back below $100. However, the main point of focus for investors was to be found in the market for US government bonds, were a closely watched recession signal flashed a warning on Thursday.
Japan: Economic stimulus required
The Japanese market stood out, falling in a week that was generally positive for global stock markets. The Bank of Japan’s Tankan survey pointed to declining confidence among the nation’s large manufacturers – the first since the depths of the pandemic. Questions over the outlook for Japan prompted Prime Minister Fumio Kishida to confirm that plans to stimulate the economy will be unveiled later this month.
China: “Zero Covid” policies are weighing on growth
With relatively few of the old and vulnerable having received three vaccine doses, the Chinese state is compelled to continue with its “zero covid” policies, locking down several districts, including key industrial regions such as Shanghai, in the face of a wave of omicron infections. However, the stock market gained on the expectation that the authorities will respond with a meaningful plan to help support the economy.
Europe: Energy security, sanctions and inflation – a heady brew
Rumours of energy rationing greeted the news that European leaders would refuse to pay for Russian oil and gas in roubles, as demanded by Vladimir Putin. However, sentiment rebounded as it became clear that a work-around solution will enable European purchasers to keep the lights on. Meanwhile, record high inflation prompted speculation that the European Central Bank will be forced to raise interest rates sooner rather than later. However, the bank’s chief economist countered by pointing to the economic fall out from the conflict in Ukraine, suggesting policy should be loosened if the economic outlook deteriorates.
UK: Business and consumer confidence are in decline
Defensive sectors such as health care, consumer staples and utilities led UK stock market indices higher, with more economically sensitive areas such as industrials, consumer discretionary and energy lagging. Though data showed the UK economy grew faster than previously thought in the final quarter of 2021, surveys pointing to low confidence among businesses and consumers clouded the economic outlook.