NBK’s Weekly Money Market Report: Global Economies On Guard As War Hits Growth Prospects

  • The Russian invasion of Ukraine prompted market participants to take refuge in the dollar as demands for safe havens intensified.
  • Global markets torn between the results of war and the confrontation of global tightening measures have created wild swings in stocks and bond yields across the board.
  • With inflation still the primary target at hand, snippets of economic health amid tensions provided gauges and clues as to how central banks will move forward despite the surrounding wartime tensions.
  • Oil prices soared above $100 a barrel amid concerns over dwindling supplies.

Just two days after Vladimir Putin declared two breakaway states in Ukraine and a first tranche of sanctions was imposed on Russia by world peers. Russian military troops stormed eastern Ukraine as Vladimir Putin deemed it necessary against the threat to Russian security with the expansion of US troops and its allies in the region. Global peers have taken the call to cripple the Russian economy with more sanctions cautiously to ensure minimal collateral damage to the current inflationary outlook. The United States has sanctioned Russian banks and technology exports in addition to the sale of Russian sovereign debt and elites, while the United Kingdom has targeted Russian banks and the EU has followed similar sanctions against Russian elites.

Battle cries erupted on the forex front, drowning out any chance of salvation from bracing economic data. Supported by safe-haven flows, the dollar captured all the potential gains from its peers. The euro was brutalized after a volatile week in trading, dropping from highs of 1.1350 to a new 2022 low of 1.1100. It eventually moved to 1.1267 as whispered optimism buzzed in the background over ceasefire efforts. The pound limped back to 1.3405 after falling to 1.3375 and remains weighed down by officials’ uncertain pessimistic economic outlook. Advancing towards the east where the echoes are slightly weaker, the yen failed to break free from a trapping 115. Below, the Australian Dollar managed to hold above at 0.7232 while the New Zealand Dollar rallied back above the 0.6700 level after slipping slightly below.

Strengthened economic data, weakened morale

A winning US economy is doing well with impressive manufacturing and services PMI data, jobless claims a notch lower than expected and quarterly GDP growth beating expectations at 7.0% last quarter. With the Federal Reserve on track to raise rates at its next meeting, the threat of geopolitical tensions and growth stifled by the upside have clouded consumer confidence. More volatility looms as the Fed’s decision hinges on its main inflation gauge, the PCE core price index, which came in as expected at 0.5% month-over-month .

Other economic data to be released throughout the week includes the ISM manufacturing and services numbers, the ADP nonfarm payrolls move and the latest jobless rate ahead of the Fed Chairman’s testimony, Jerome Powell, Wednesday.

Market consequences

The geopolitical blows swung bond yields and equities violently as they edged into corrective territory before finally resurrecting at the end of the week. The S&P 500, Dow Jones and Nasdaq 100 all ended the week in the green as the latest batch of export sanctions fueled gains in equities. Treasury yields suffered deep wounds in the battle for safe-haven status as markets discerned geopolitical developments and impending rate hikes. The 10-year yield was 1.96% while the 2-year yield was 1.57%.

EU and UK

Resilient economic development under fire

Europe’s recent prosperous economic development has failed to combat apprehensions over tensions. Rising wages and the easing of pandemic-related restrictions have revived consumer demand, which has led to strong figures in German manufacturing and services and preserved strong consumer sentiment. Still, fears have spilled over to the prospect of Putin militarizing gas exports to his neighbors and Ukrainian refugees flooding into neighboring states. Eyes wide open await ECB President Lagarde’s speech later this week on the conflict to look for hints of any readjustment in the monetary policy outlook later this year.

Defeated optimism pushes for a more modest tightening

Across the Channel, the economic picture is blackened with pessimism despite better than expected health in manufacturing and services PMI figures. Bank of England (BoE) officials kept their rhetoric cautious and dovish as they leaned towards a slow and steady approach to cooling inflation, betting on a 50 basis point rate hike on next month fading. Ahead of a squeeze in living standards from energy prices and taxes, BoE Governor Andrew Bailey pointed to additional inflationary risks from Ukraine tensions, further suppressing confidence in the economy.


Officials in Oceania on high alert and watch

In Australia, economic development is balanced after the manufacturing and services PMI were much better than the previous month, while wage growth unfolded as expected. The RBA insists on assessing economic data before any action. Monthly retail sales are released this week ahead of their meeting. Economic development in neighboring New Zealand peaked with retail sales overshooting as they made walk rate hikes for the third time and announced the start of the cut in July this year.

The People’s Bank of China struggles with the real estate market

As Covid-19 issues drive economic growth on top of geopolitical strife, the People’s Bank of China (PBOC) has beefed up support for liquidity as the strife amid the property market slump has rattled their markets. The PBOC injected a net amount of 290 billion yen ($48.5 billion) into the market to keep liquidity stable in a bid to wipe off the bloodshed of a market sell-off. Chinese stocks cheered after the injection.


Fighting prices amid worsening inflation outlook and risk aversion

Prices in the commodities complex rose as oil and gold prices were pulled left and right from the safe haven cries. Oil prices soared to $100 a barrel as they rallied on hopes of Iranian barrels entering the parched supply chain and US President Joe Biden’s pledge to tap into supplies from emergency if necessary. Gold’s rally was also played out amid chaotic market volatility after surging to $1,950 an ounce, followed by a significant decline to $1,889.34 an ounce.


Kuwaiti dinar

USD/KWD closed last week at 0.30275.

Rates – 27and February 2022


© Press Release 2022


Comments are closed.