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LGT Navigator: Putin's next move

February 22, 2022

Kremlin leader Putin's recognition of the Luhansk and Donetsk People's Republics, which Moscow now recognizes as independent states, and his order to send troops into eastern Ukraine have defacto dissolved the Minsk Agreement, ushering in a further stage of escalation in the conflict with the West. The US and the EU immediately announced sanctions, although there is no unity or transparency regarding the extent. Understandably, nervousness is rising on capital markets, and some of Asia's stock exchanges are suffering heavy losses.

Putin's next move

NATO Secretary General Jens Stoltenberg accuses Moscow of further inflaming tensions in eastern Ukraine and of trying to construct a pretext for an invasion of Ukraine. Recognition of the self-proclaimed Donetsk and Luhansk People's Republics as independent states undermines Ukraine's sovereignty and territorial integrity, as well as efforts to find a solution to the conflict, he said. The United States sees the actions as the first step toward a full-scale invasion. French President Emmanuel Macron immediately called for an emergency meeting of the UN Security Council in response to Putin's move. Against this backdrop, the announced summit between US President Joe Biden and Kremlin leader Vladimir Putin also seems highly questionable. After all, US Secretary of State Antony Blinken is scheduled to meet with his Russian counterpart Sergey Lavrov on Thursday.

While financial markets in the US remained closed for a holiday, the Ukraine crisis weighed on Europe's stock markets at the start of the week. The EuroStoxx 50 fell in places on Monday to 3'957 points and thus to the lowest level since July 2021. At the end, a minus of a good -2% resulted and the index ended trading at 3'985.71 points. A ray of hope was provided by the latest purchasing manager survey data from Europe. In Asia, the negative trend and the high degree of uncertainty continued. In Tokyo, the Nikkei 225 loses about -1.7% and in Hong Kong, the Hang Seng index even collapses by more than -3%. The futures markets also signal a clearly negative opening for the European stock markets on Tuesday.

PMI surveys in Europe – light at the end of the tunnel

According to the latest survey results, the companies regularly surveyed by the London-based market research institute IHS Markit were much more confident about the outlook for the eurozone. The Purchasing Managers' Index, which covers the private sector, improved from 52.3 at the beginning of the year to 55.8 points in February (consensus 52.9), the highest level in five months. IHS Markit pointed to the loosened pandemic restrictions, which have greatly accelerated growth in the euro area. In addition to stronger demand for services, particularly in the tourism sector, easing supply chain bottlenecks in the industrial sector also made a positive contribution.

Companies in the UK private sector were also more optimistic. The Purchasing Managers' Index for the services and industrial sectors rose surprisingly strongly by six points to 60.2 (consensus 55.3). According to IHS Markit, a clear improvement in sentiment was particularly evident among service providers. 

Financial experts see no easing of inflation according to ZEW survey

According to the Mannheim-based ZEW economic research institute, a majority of the 173 financial professionals surveyed in the latest study expect the annual inflation rate in the eurozone to average 3.8% in the current year. Inflation will be driven primarily by energy prices, scarce raw materials, and global supply bottlenecks.

Record rise in German producer prices

A further rise in producer prices is likely to fuel inflation in Germany. At the beginning of the year, prices at producer level increased by +25% year-on-year, marking the sharpest rise since data collection began in 1949. On a monthly basis, producer prices rose by +2.2%. Companies had to pay almost 67% more for energy in January than a year ago. The price of natural gas rose by as much as 119% over the year.


Economic Indicators February 22

MEZ Country Indicator Last period
10:00 GE Ifo Business Climate (February) 95.7
10:00 IT Consumer Prices (January, y/y) +5.3%
15:00 US S&P/CaseShiller Housing Prices 20 Cities (February)  +18.3%
15:45 US PMI Composite (February)  51.1
16:00 US Consumer Confidence (February) 113.8


Earnings Calender February 22

Country Company Period
GE Fresenius Annual
UK HSBC Annual
NOR Norsk Hydro Annual
ESP Endesa Annual
US Home Depot Annual
US Medtronic Q3
US Agilent Technologies Q1
US Macy's Q4


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Source: LGT Bank (Switzerland) Ltd.

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