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Take Five: A year of war in Ukraine

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The coming week will mark a year since Russia invaded Ukraine. The war goes on, but the world, and the markets, are in a very different place from last February.

Here’s a look at the week ahead in markets from Kevin Buckland in Tokyo, Naomi Rovnick and Karin Strohecker in London, Vidya Ranganathan in Singapore and Lewis Krauskopf in New York.

Senior politicians and military leaders from around the globe meet in Germany this weekend, days before the anniversary on Feb. 24 of Russia’s invasion of Ukraine – Europe’s biggest conflict since World War Two.

The war is estimated to have cost thousands of lives and displaced millions. Sweeping sanctions have severed Russia from the fabric of global financial markets, reshaped commodity and energy flows, and pushed up inflation and funding pressures globally.

Moscow is ramping up its spring offensive, while Ukraine – armed with heavier and longer-range firepower from the West – gathers strength for a counter push.

To debate the West’s further response, German Chancellor Olaf Scholz, French President Emmanuel Macron and U.S. Vice President Kamala Harris are among many top officials attending the Munich Security Conference.

Difficult international discussions over debt forgiveness for poor nations are going to get even trickier, when India hosts from Feb. 22-25 the first G20 finance and central bank chiefs meeting for the year. The world’s largest bilateral creditor China is under fire for playing tough on its terms.

At the top of the agenda, besides cryptocurrency regulation, is the G20 Common Framework debt pact to allow the restructuring of low-income countries’ debts after the pandemic.

India supports a push by the IMF, the World Bank and the United States for the Common Framework to include middle-income countries, though China has resisted. Progress is slow and while Chad, Ethiopia, Ghana and Zambia have all sought help, so far only Chad has reached a deal.

Although incoming Bank of Japan governor Kazuo Ueda is a dove, investors expect his tenure to end to yield curve controls. The $8-trillion question for the JGB market, though, is when?

On the same day as the Ukraine anniversary – Feb. 24 – Ueda should offer clues on timing when he testifies with his two would-be deputies to the lower house. His Upper house testimony will be on the following Monday.

The consensus is Ueda will not rush to make changes, but with the costs of maintaining YCC climbing, and market distortions ever more pronounced, time is against him.

Elsewhere, the Reserve Bank of New Zealand sets policy on Wednesday and the Bank of Korea on Thursday. Both are seen taking dovish turns, with consumer prices starting to cool, and South Korea at risk of its first recession since the 2020 onset of the pandemic.

Fourth-quarter earnings season is nearly over and it has been tepid so far. The days ahead will bring a look at how the U.S. consumer has held up as some heavy-hitter retailers report results.

Walmart (NYSE:WMT), the world’s largest retailer by sales, and home improvement giant Home Depot (NYSE:HD) report on Tuesday, while discount store operator TJX Companies (NYSE:TJX) reports on Wednesday. Lowe’s (NYSE:LOW) and Best Buy will deliver results the following week.

Beyond the retail sector, semiconductor maker Nvidia (NASDAQ:NVDA) and pharma company Moderna (NASDAQ:MRNA) also announce earnings. Fourth-quarter earnings are expected to have dropped 2.8% from the year-ago period, Refinitiv IBES data as of Feb 10 shows.

European stocks have risen in line with a recovery in business sentiment and activity that signals the region may escape recession. But markets are treading a fine line.

Any upswing in the new orders component of the upcoming purchasing managers indexes – the keenly watched surveys of business activity – could be bullish.

But if rosier commercial conditions bring with them rising price pressures, this may strengthen the European Central Bank’s resolve to keep raising interest rates given stubbornly high inflation.

Yields on Germany’s two-year bonds, which reflect interest-rate expectations, have hit their highest since 2008 this month.

At the same time, equities are plugged into a view that higher borrowing costs will not derail companies’ earnings prospects. These outlooks are not coherent. It will be difficult for both asset classes to be right.

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