Interactive Investor

Market snapshot: Russia-Ukraine tension spooks investors

14th February 2022 08:16

Richard Hunter from interactive investor

The dampened sentiment which flooded Wall Street at the end of last week spilled over into Asia and has landed on UK shores in early trade.

Investors have been wrong-footed once more as simmering geopolitical tensions and the reverberations of a high US inflation print weigh on sentiment.

With the situation between Russian and Ukraine reportedly worsening with the increasing possibility of an invasion, diplomatic solutions thus far have had little impact. In economic terms, while any such invasion would be most acutely felt in Europe, there would likely be wider implications such as the possibility of supply chain restrictions and a further boost to the oil price on lessened supply. The oil price has now risen by 23% in the year to date, exacerbating inflationary pressures.

These pressures are being keenly felt globally and the latest reading of US inflation was not only above expectations, but also the highest annual increase in 40 years. This in turn has heightened concerns that the Federal Reserve will be more aggressive with its interest rate hiking programme in an attempt to stem the situation.

The general tightening and rising interest rate environment has generally not been kind to stocks, with growth-sensitive stocks such as big tech in the eye of the storm. At the same time, earnings misses and anything other than a strong outlook are being punished, even though for the most part the reporting season so far remains comfortably ahead of expectations.

In the year to date, however, the latest set of sliding prices has left the Dow Jones down by 4.4%, the S&P 500 by 7.3% and the Nasdaq by 11.9%.

In the UK market, the premier index has been swimming against an increasingly rough tide. While certainly not immune from the wider global concerns, the index has provided some insurance against inflation given the nature of its constituents. It is also seeing the benefit of having a larger exposure to the likes of the oil and banking sectors, both of which have been moving more positively given the current interest rate and supply situations.

Even so, the dampened sentiment which flooded Wall Street at the end of last week spilled over into Asia and has landed on UK shores in early trade. The markdown of the FTSE 100 is widespread, with even defensive shares feeling the current pressure. Nonetheless the index remains ahead by 2.4% in the year to date, which is an increasingly impressive performance given the pressures being encountered elsewhere.

Meanwhile, further colour will be given to the specific state of the UK economy later this week, as unemployment, inflation and retail sales figures all add to the cocktail of factors that the Bank of England will be watching in considering its next interest rate decision.

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