Market Update – 16th February 2022.

The main mover of markets this week has been fears mounting over a Russian attack on Ukraine. Europe was amongst the falls, driven by the concern that if Russia attacks Ukraine, the region could suffer disruptions to their energy supplies. Were a war to break out, Nordstream 2 would be thrown into disarray, which is not in the interests of Russia and Europe alike.

We are already seeing signs of de-escalation, and accordingly, we’re seeing global equity markets bounce strongly. The volatility the markets have shown so far this week reflect yet more noise in the path of an equity market looking set to have a strong year.

Inflation was announced in the UK at 5.5%. Whilst this will hit headlines, this higher inflation measure is not a surprise to neither economists nor markets. The Bank of England stated in their February monetary policy report, that they expect inflation to peak in the spring, but then fall back towards their 2% targets.

Growth in pay (excluding bonuses) was 3.7% in October-December 2021, when compared to the year before. When this is adjusted for inflation, this shows a pay cut in real terms of 0.8%.

This is data that the BoE should consider when addressing monetary policy. As we have said previously, given the energy cap increase and National Insurance Contribution increase in April, alongside this pay cut in real terms, the central bank will need to be measured, gradual and continually data dependent when looking at raising interest rates.

In Europe, we saw the release of Eurozone GDP that came in line with expectation at 4.6% growth year on year.

There is plenty of data to pore over in the latter half of this week, including US and UK retail sales, the minutes from the last Federal Open Market Committee meeting in the US, and Eurozone industrial production.

Hannah Owen, Portfolio Specialist

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