Financial Bulletin – March’22


February began with investors contemplating inflation and interest rate rises but this was quickly overshadowed by Russian aggression in Eastern Europe, culminating in a full-scale invasion of Ukraine.

In response most Western countries imposed various sanctions on Russia, even going so far as to directly inhibit the Russian Central Bank.

Whilst these steps will have a significant impact on the Russian economy the immediate issue for Europe is the substantial increase in energy prices coming at a time when inflation is already elevated.

The price of Brent Crude Oil rose above $100 a barrel for the first time since 2014 and gas prices also surged higher.

Inflation across most of the world continued to edge higher during the month with the headline rate in the US reaching the highest since 1982.

As could be expected, most stock markets have been volatile whilst investors deal with significant uncertainty.   

Over the last 6 months the FTSE 100 returned 5.63%, the S&P 500 returned -2.86%, whilst the Euro Stoxx 50 returned -5.55%.

The Japanese Nikkei 225 returned -7.03% over the same period.

The broad emerging markets index returned -10.07% in US$ terms.

The 10 year US Treasury yield fell back slightly towards the end of February as investors sought a ‘safe-haven’ investment. However, over a 6 month period the yield has risen substantially.   

US Economic News

There was positive news when it comes to the strength of the US economy as not only was growth in the fourth quarter of last year revised upwards but more forward-looking indicators also improved.

A loosening of COVID-related restrictions meant that demand in the services sector rose and new jobs were created at the fastest pace since last summer.

However, cost pressures continued to rise at an historically high rate and companies are passing these pressures onto consumers.

The headline inflation rate rose to 7.5% in January, the highest rate since 1982, as energy prices surged.

Expectations are for inflation to edge even higher over the coming months.

Much of the discussion within financial markets over the last month has been over whether the Federal Reserve will choose to raise interest rates by 0.50% in March, rather than the more normal 0.25%.

If the Fed does choose to enact a 0.50% rise then this would be a signal of their concern regarding inflation.

Regardless of how far the Central Bank chooses to go in March, expectations are for regular rate rises throughout the year.

UK Economic News

The waning threat from the Omicron variant and the removal of restrictions gave the UK economy a boost during February, particularly the services sector.

As if to emphasise this, retail sales rose by much more than expected, due to demand for leisure and travel.

Business optimism for the year ahead rose sharply and new jobs were created at a solid rate.

As in previous months, however, continued cost pressures remained a key concern.

The headline inflation rate edged higher in January to 5.5%, ahead of expectations which were for the rate to remain the same.

The one piece of positive news where inflation is concerned is that UK manufacturers reported a slight easing in supply-chain shortages.  

It had been widely flagged that the Bank of England would raise interest rates in February, which they duly did.

However, it came as a surprise to many that four members of the MPC voted for an even bigger rate rise. This was taken as a sign that the Central Bank is more likely to increase, rather than decrease, the pace of rate rises.

Eurozone Economic News

The Eurozone economy followed the pattern of both the US and UK in accelerating as COVID restrictions were eased.

Employers took on new workers at a faster rate as demand rose substantially.

However, cost pressures remained extremely elevated and, with some parts of Europe extremely dependent on Russian energy, the situation could get worse before it gets better.

The European Central Bank has so far remained out of step with the Bank of England and the US Fed.

Whilst the latter two have noticeably changed their tone on inflation, the President of the ECB has so far refused to countenance raising interest rates faster than previously planned.

During February Christine Lagarde once again warned of ‘hasty’ rate rises.

It remains to be seen by how much the Russian invasion of Ukraine, and resulting sanctions, hurt business and consumer confidence in the coming months.

Wider Economic News

In terms of wider economic news, the month was dominated by the Russian invasion of Ukraine and the resulting sanctions imposed by most major economies.

With Russia being one of the world’s largest energy exporters the uncertainty immediately sent oil and gas prices rising – a barrel of Brent Crude went above $100 for the first time since 2014.

The restrictions imposed on the Russian Central Bank could have very significant implications for the Russian economy, particularly the value of the currency. The Ruble fell by as much as 30% against the Dollar in the last week of the month.

Elsewhere the Chinese economy remained fairly lacklustre and, in a sign that momentum is not expected to return in the near future, businesses reported being unwilling to take on new staff.

Financial Markets and Corporate News

Investor sentiment had already been fairly fragile before the Russian invasion of Ukraine and the uncertainty resulting from the military action saw most stock markets retreat further.  

The UK’s FTSE 100, which has a relatively high weighting to energy companies, has held up better than US and European markets.

Over the last 6 months the FTSE 100 returned 5.63%, the S&P 500 returned -2.86%, whilst the Euro Stoxx 50 returned -5.55%.

The Japanese Nikkei 225 returned -7.03%.

The broad emerging markets index returned -10.07% in US$ terms.

The 10 year Treasury yield fell towards the end of the month but is still considerably higher over a 6 month period.

The Investment Association (IA) UK Gilts sector returned -6.96% over 6 months, whilst the IA Sterling Corporate Bond sector returned -6.43% and the IA Sterling High Yield sector returned -3.77%.

 Summary of Key News:

  • A Russian invasion of Ukraine sent energy prices soaring.
  • Most developed economies have imposed sanctions on the Russian economy and businesses.
  • Inflationary pressure continued to rise across most regions.
  • US inflation reached the highest since 1982.
  • The Bank of England raised interest rates for a second month in a row.
  • The US Fed is almost certain to start raising rates as well.
  • The European Central Bank, however, looks less likely to begin doing so.

Financial Markets:

  • Over 6 months the FTSE 100 returned 5.63%, the S&P 500 returned -2.86%, and the Euro Stoxx 50 returned -5.55% (total return).
  • The Japanese Nikkei 225 returned -7.03% (total return).
  • The broad emerging markets index returned approximately -10.07% (in US$ terms).
  • The   IA UK Gilts    sector    returned -6.96% over 6 months, whilst the IA Sterling Corporate Bond sector returned -6.43%, and the IA Sterling High Yield sector returned -3.77%.


Due to the relative size of the Russian economy, any domestic recession is unlikely to have much of an economic impact on the world.

However, the influence of Russian energy is a different matter entirely. Coming at a time when developed economies are already dealing with sustained inflationary pressure, volatile energy prices could squeeze consumers even further and undermine confidence.

The economic landscape has therefore, if anything, become even harder for Central Banks to navigate.

Whilst inflation is clearly above target and unemployment is low, if Central Banks go too far too soon at a time when incomes are being squeezed then growth could dissipate rapidly.

Central Bank policy could also be crucial to the immediate course of stock markets.

Since the start of the year, we have seen a rotation away from highly valued ‘growth’ stocks (such as technology) and towards ‘value’ stocks (such as banks and physical retail).

The question of how far, and how long, this trend continues for likely depends to a large extent on whether investors truly believe that interest rates will remain materially higher.

We are therefore facing an uncertain outlook.

Whilst underlying growth in most developed markets is solid, this could quickly turn if disposable incomes get squeezed and Central Banks move too quickly.

At the same time, the uncertainty likely means that sentiment within financial markets will be fragile until the outlook becomes clearer.