Skip navigation Scroll to top
Scroll to top

LGT Navigator: Monetary policies and geopolitics continue to set the pace

March 21, 2022

The interest rate turnaround and the war in Ukraine remain the dominant themes on capital markets. Thus, in the new trading week, the focus continues to be on the war and central banks. On Thursday, heads of state and government will meet in Brussels to discuss the Ukraine crisis. On the same day, the monetary policy decisions of the Swiss National Bank and the Central Bank of Norway are also expected.

Monetary policies and geopolitics continue to set the pace

Wall Street closed the last week – marked by the interest rate turnaround of the Federal Reserve – once again with strong gains. The Dow Jones Industrial went out of trading with a daily gain of +0.8% at 34'754.93 points and thus put a plus of almost five and a half percent on a weekly basis. The broad S&P 500 closed +1.17% higher at 4'463.12 points on Friday. Gains were even stronger on the Nasdaq, where the indices were up just over two percent before the weekend. The events on Friday were also determined by the options expiration day, which often provides for larger price fluctuations. However, technology stocks are proving surprisingly resistant now to the more restrictive stance of the Federal Reserve. This was underlined again at the end of last week by some top Fed representatives. For example, James Bullard, president of the St. Louis regional central bank, spoke out in favor of raising interest rates to more than three percent over this year. The yield for ten-year US government bonds traded at 2.15%, slightly below the high reached last week since mid-2019.

Asia's stock markets showed a mixed picture at the start of the week without a consistent trend. In Tokio, equity markets remained closed due to a holiday. At the center of events remains the geopolitical crisis in Ukraine and the confrontation with Russia. On Friday, US President Joe Biden and China's President Xi Jinping spoke on the phone on this issue, without concrete results. “As permanent members of the UN Security Council and the world's two largest economies, both countries should assume international responsibility and make efforts for peace and tranquility in the world,” Beijing said. But it seems important that at least the channels of communication remain open.

Russia's central bank seems powerless at present

After Russia's central bank raised its key interest rate by about ten percent to its current level of 20 percent following the start of Russia's invasion of Ukraine, the central bank left its key interest rate unchanged for the time being. Russia's economy is in a “structural transformation phase,” commented central bank head Elvira Nabiullina. In view of the massive sanctions imposed by the West and the frozen central bank reserves of around USD 600 billion, the central bank currently does not seem to be able to do much to counter the collapse of the ruble and the foreseeable rise in inflation as well as declining economic growth.

Russia's credit rating further downgraded by S&P

The US rating agency Standard & Poor's has downgraded Russia's credit rating by another notch to “CC.” This means that the rating is now only two notches above a default. The question is whether the Russian state will be able to service interest payments due on government bonds despite the sanctions. In any case, S&P sees Russia's solvency at risk. The rating agency also pointed out that a default could occur if investors did not have access to their money or if payments were made in a currency not listed in the bond terms and did not agree to an alternative payment.

When will the ECB also start its U-turn maneuver?

Now that the Federal Reserve has completed its turnaround on interest rates and other central banks are also already pursuing a more restrictive monetary policy course, pressure is growing on the European Central Bank (ECB). Central bank president Christine Lagarde stressed last week that the ECB would have to pursue a much more flexible course because of the crisis in Ukraine. According to Lagarde, in the current environment, the ECB's monetary policy must follow the three principles of optionality, gradualism and flexibility. In doing so, the ECB is in a dilemma; on the one hand, the war and the conflict with Russia are causing high uncertainty and, above all, rising energy prices, which in turn is fueling already high inflation, and on the other hand, the war and inflationary pressures could increasingly jeopardize the economy's recovery from the pandemic. Within the ECB Governing Council, meanwhile, the hawks are getting louder and, for example, ECB Governing Council member Klaas Knot said that the ECB could decide on one or possibly even two interest rate hikes as early as this year.


Economic Indicators March 21

MEZ Country Indicator Last period
00:00 JP Holiday
08:00 GE Producer Prices (February, y/y) +25.0%
13:30 US Fed Chicago National Activity Index (February) +0.69


Earnings Calender March 21

Country Company Period
US Nike Q3


LGT helps you make informed investment decisions

All about global economic and market trends at a glance

Subscribe to LGT's research newsletters

You can also follow us on Facebook or LinkedIn – or visit MAG/NET and discover interesting background articles. If you have questions, a consultant from the bank will be happy to help you.

Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail:
Source: LGT Bank (Switzerland) Ltd.

Risk Disclosure (Disclaimer)
This publication is an advertising material / marketing communication. This publication is for your information only and is not intended as an offer, solicitation of an offer, or public advertisement to buy or sell any investment or other specific product. Its content has been prepared by our staff and is based on sources of information we consider to be reliable. However, we cannot provide any confirmation or guarantee as to its being correct, complete and up to date. The circumstances and principles to which the information contained in this publication relates may change at any time. Information that has been published should therefore not be understood as implying that no change has taken place since its publication or that it is still up to date. The information in this publication does not constitute an aid for decision-making in relation to financial, legal, tax-related or other consulting matters, nor should any investment decisions or other decisions be made on the basis of this information alone. It is recommended that advice be obtained from a qualified expert. Investors should be aware that the value of investments can fall as well as rise. Positive performance in the past is therefore no guarantee of positive performance in the future. Investments in foreign currencies are also subject to fluctuations in exchange rates. We disclaim all liability for any loss or damage of any kind, whether direct, indirect or consequential, which may be incurred through the use of this publication. This publication is not intended for persons subject to legislation that prohibits its distribution or makes its distribution contingent upon an approval. Any person coming into possession of this publication shall therefore be obliged to find out about any restrictions that may apply and to comply with them. In line with internal guidelines, persons responsible for compiling this report are free to buy hold and sell the securities referred to in this report.