Market Overview – 15/03/2022

Global equity markets continued to be volatile last week as events in the Ukraine showed no signs of improvement. Oil prices remain elevated as we wait to see whether Europe will join the US in banning imports of Russian oil and gas. This is a big week for central banks. We have both the Bank of England and the US Federal Reserve pronouncing on interest rates. It seems likely that both will raise borrowing costs by 0.25%. Inflation numbers continue to move higher, with the latest reading for the US showing a rise of 7.9% in the year to February. Higher energy prices have been a major contributor to this, but there are signs that price pressures are broadening out to other areas such as food and accommodation.

Inflationary pressures have been with us for a number of months now, due to the combination of economic stimulus and supply chain restrictions. The war between Russia and Ukraine has put further upward strain on energy and grain prices. It looks as if higher inflation will be with us for longer. Meanwhile, economic growth forecasts are being pared back as higher costs impact on household incomes and company profits. Central banks have the unenviable task of trying to balance the twin risks of higher inflation and weaker growth. Too aggressive interest rate rises will potentially hit growth levels. Too timid action, however, could allow higher inflation expectations to become entrenched and thus difficult to reverse. The narrative from the monetary authorities suggests that inflation remains the primary concern at present. Expect more interest rate rises over the coming months.

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