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LGT Navigator: The shadow of war is getting longer

March 7, 2022

On global stock exchanges, share prices remain heavily battered in the face of the ongoing war in Ukraine and no signs of a resolution to the conflict with Russia. The possibility of a full-scale oil and gas embargo by Russia could now be increasingly considered, which in turn could severely impact energy security, particularly for Europe. Meanwhile, the recovery in the US labor market is in full swing, keeping the Fed on its anticipated course of interest rate hikes. This week, the focus will be on the ECB's monetary policy decision on Thursday.

The shadow of war is getting longer

After the sharp fall in equity markets in Europe on Friday – the Euro STOXX 50 closed almost – -5% lower – and losses also in New York, the stock markets in Asia also opened the new week strongly negative in view of the continuing high level of uncertainty. In Tokyo, the 225-stock Nikkei index lost around -3%. The Dow Jones Industrial closed -0.53% lower at 33'614.80 points on Friday, posting a loss of about -1.3% over the past week. The S&P 500 closed -0.79% lower at 4'328.87 points on Friday and on the Nasdaq, the indices went into the weekend almost -1.5% lower than the previous day.

The euro fell against the US dollar for the first time since May 2020 below the mark of USD 1.09, while oil and commodity prices held at high levels. Meanwhile, the yield on ten-year US government bonds traded at around 1.7%. Safe havens such as the Swiss franc remained in demand. With the Ukraine war, the franc cracked the 1.01 mark against the euro for the first time when the Swiss National Bank lifted the minimum euro exchange rate at the beginning of 2015 and has parity within reach.

The focus is now also on the European Central Bank (ECB), which will set its further monetary policy course on Thursday in the shadow of the Ukraine war. Against the backdrop of the highly uncertain geopolitical situation, the ECB could be forced to stick to its expansionary stance for longer – longer than the inflation trend would demand.

US labor market strengthens interest rate expectations

In the United States, employment growth in the overall US economy (excluding the agricultural sector) was much stronger than expected in February. For example, +678'000 new jobs were created last month, far exceeding the analyst consensus of +423'000. In addition, job growth in the two previous months was stronger than initially estimated. Another 92'000 jobs were added in January and December. At the same time, the unemployment rate fell from 4.0% to 3.8% (consensus 3.9%) and is thus approaching the level seen before the corona crisis. The Federal Reserve (Fed) is likely to see confirmation in the solid development of the labor market and to implement the first of several interest rate steps in mid-March.

Russia's credit rating in question

Russia's credit rating in the capital markets has taken a severe hit due to the war in Ukraine and economic sanctions. At the end of last week, the three major rating agencies Standard & Poor's (current rating “CCC-“), Moody's (“B3”) and Fitch (“B”) lowered their rating to junk level. In addition, further rating downgrades are in prospect and warnings of a Russian default are issued. Above all, the Russian central bank's restricted access to its currency reserves and the exclusion of Russian banks from the SWIFT network are likely to have serious consequences for Russia. In addition, the free fall of the ruble is leading to a rise in inflation.

Italy's economy remained on growth track at the end of 2021

The Italian economy still grew +0.6% quarter-on-quarter in the fourth quarter of last year, despite the pandemic. In Q3, however, the third-largest GDP in the eurozone had grown by a much stronger +2.6%. Economic growth in the final quarter of 2021 was driven primarily by consumer spending and business investment.


Economic Indicators March 7

MEZ Country Indicator Last period
07:45 SZ Unemployment Rate (February) 2.3%
08:00 GE Factory Orders (January, m/m) +2.8%
10:30 EZ Sentix Investor Economic Outlook +16.6


Earnings Calender March 7

Country Company Period
SZ Bauer Annual
SZ SNB Annual


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