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LGT Navigator: War in Ukraine and Russia's isolation jeopardize outlook for global economy

March 1, 2022

The war and intensified sanctions as well as Russia's economic and political isolation, not only have the potential to create geopolitical uncertainty, but also pose an increased threat to Europe's energy security and the outlook for the global economy. The economic consequences for Russia are likely to be dramatic the longer the conflict lasts. Initial talks between the warring parties have so far failed to produce any results, and hostilities continue unabated. For the financial markets, this means a continuing high level of uncertainty.

War in Ukraine and Russia's isolation jeopardize outlook for global economy

On Wall Street, stock indices suffered further losses at the start of the week. The Dow Jones Industrial lost at the start of trading over one percent lost and ended Monday finally -0.49% lower at 33,892.60 points. The S&P 500 fell by -0.24% to 4,373.94 points. Under pressure were against the backdrop of tighter sanctions against Russia, especially banks. On Asia's stock exchanges, the indices tended on Tuesday mostly in positive territory, although no consistent trend can be observed. Futures markets point to a negative opening in Europe.

Further tightening of sanctions possible

The US government threatened Russia with an expansion of sanctions against the energy sector. This option is not off the table, the White House stressed. However, the aspects for the global energy markets are also being considered, as well as the fact that Russia is an important energy supplier for Europe and sanctions could lead to further increases in gas prices.

Talks between Ukraine and Russia without breakthrough

Peace negotiations between Russia and Ukraine ended yesterday after about six hours without a result. However, the talks are expected to continue at least for the next few days. The Ukrainian side was already skeptical in the run-up to the talks and the question is whether Russia is not simply trying to buy time for a further advance.

Meanwhile, Ukrainian President Volodymyr Selensky called for Russia to be expelled from the UN Security Council and for Ukraine to join the European Union.

Tough sanctions against Russia's central bank

The European Union and the United States have enacted massive sanctions against Russia's central bank. As a result, transactions with Russia's central bank are banned and transactions in US dollars are made impossible for Russia worldwide. Exceptions would only be made for certain transactions related to the oil and gas market. With the sanctions, a large part of Russia's foreign exchange reserves, estimated at USD 630 billion, is now said to be de facto blocked.

Russian central bank reacts with massive interest rate hike

To counter the drastic collapse of the ruble, the Russian central bank has raised its key interest rate from +9.5% to +20.0%. In addition, the central bank prohibited securities traders from selling Russian securities owned by foreigners. At the same time, the Ministry of Finance announced that companies would be obliged to sell part of their proceeds in foreign currency. With the measures, Russian authorities are trying to curb the ruble's plunge.

Moscow's response to sanctions

Kremlin spokesman Dmitry Peskov said Russia would respond to the West's tougher sanctions with equivalent sanctions. For example, he said, airspace would be closed to aircraft from the European Union. The sanctions are problematic for Russia, but the country has the necessary potential to compensate for the damage, Moscow said. However, there is no question that the sanctions imposed by the West, including the exclusion of Russian banks from the global financial transaction system Swift, are hitting the Russian economy hard.

Inflationary pressure in Spain continues to increase

In Spain, consumer price inflation again increased significantly in February. The inflation rate for the year was +7.5% compared with +6.5% at the beginning of the year. Analysts had on average expected an increase to +7.0%. Prices continue to be driven by higher prices for fuel, heating oil and electricity. In February, however, many foodstuffs also became more expensive.

Report of the Intergovernmental Panel on Climate Change

According to the latest report of the Intergovernmental Panel on Climate Change (IPCC), the heating of the earth's surface will lead to further dangerous changes in nature and, consequently, for billions of people. The effects, which are already being felt today, are occurring much more rapidly and are more destructive and far-reaching than anticipated 20 years ago, the report says. For example, the consequences are already visible in all parts of the world. In addition, global warming is accompanied by other challenges, such as the growing world population, increasing poverty and inequality, and environmental pollution.

  

Economic Indicators March 1

MEZ Country Indicator Last period
08:00 GE Retail Sales (January, m/m)  -5.5%
09:15 ESP PMI Manufacturing (February) 56.2
09:30 SZ PMI Manufacturing (February) 63.8
09:45 IT PMI Manufacturing (February) 58.3
09:50 FR PMI Manufacturing (February) 57.6
09:55 GE PMI Manufacturing (February) 58.5
10:00 EZ PMI Manufacturing (February) 58.4
10:30 UK PMI Manufacturing (February) 57.3
11:00 IT Consumer Prices (February, y/y) +5.1%
14:00 US Consumer Prices (February, y/y) +5.1%
14:00 EZ ECB President Lagarde 
15:45 US PMI Manufacturing (February) 57.5
16:00 US ISM Manufacturing PMI (February)  57.6
US US President Biden 

 

Earnings Calender March 1

Country Company Period
SZ Swiss Life Annual
SZ SIG Combibloc Annual
GE Bayer Annual
GE Beiersdorf Annual
GE Commerzbank Capital Markets Day
AUT Bawag Annual
NL Stellantis Strategy
US Hewlett-Packard Q1

 

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

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