After rising inflation and rising interest rates inflicted a rough start to 2022 for the markets, February took a horrendously awful turn.
On 24th February 2022, Russia’s invasion of Ukraine brought war back to Europe for the first time in 30 years, although the similarities between 2022 and the late 1930s is far more palpable.
President Putin’s actions and rhetoric have caused untold misery to millions in Ukraine and will have bought severe consequences to his own people. The horrors we are witnessing on the news are unbearable, with the sole aim of Putin to re-order Eastern Europe into his own domain. Volodymyr Zelenskyy, Ukrainian President, is stoically leading a far stronger resistance than anyone anticipated, and we can only pray that this continues, and that domestic pressure from brave Russians protesting nightly in Moscow and St Petersburg forces Putin to change his mind.
The Western response has been far more impressive than we might have expected. Sanctions have been implemented forcefully and rapidly and will increasingly start to cause real pain for the Putin regime. The key challenge to overcome now is for authorities to ensure that key humanitarian aid and military equipment make it through from Poland to those that need it in Ukraine. Most notable has been the complete reversal in German foreign policy for thirty years with defence spending to be over the 2% NATO threshold and a move away from the decades-long reliance on Russian gas for energy.
On the back of these sanctions, the Moscow Stock Exchange fell 30%+ before trading halted. A ‘flight to safety’ has been evident with a move to Gold and Treasuries as the yield on UK 10-year fell from a peak of 160bps to a low of 112bps. The FTSE 100 remained unchanged over the month, with the increasing oil price helping the oil majors despite BP’s almost certain $20 billion write-off of their stake in Rosneft and Shell’s $5 billion stake in Gazprom’s offshore gas project Sakhalin-2. Defence sectors also rallied. The Ministry of Defence’s Integrated Review of 2021 did not factor Russian regional aggression as a substantial threat, and instead focused on increasing cuts to Armed Forces personnel and investment in cyber-warfare etc. We expect last week’s events will change this thought-process and see more investment in naval, aerial and land-based technologies, equipment and personnel.
Our thoughts are with the people of Ukraine, and those with family there.
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