The reverberations from the Russian invasion of Ukraine dominated the news headlines in March 2022, with market movements strongly correlated to the progress made in peace talks held during the month. Despite the extent of any progress made on this front being difficult to gauge, the MSCI Europe ex UK index still managed to recoup all the losses suffered since the start of the invasion on the 24th of February.
This was an impressive performance when considering the impact the war has had on global economies as commodity prices soared to levels where stagflation becomes a very real possibility. And this is the quandary central banks are increasingly having to juggle with. In the US Fed chair Jerome Powell emphasised the strength and resilience of the economy while increasing interest rates by 25bps, a move also undertaken by the Bank of England.
Ominously, the ECB did not follow suit although there have been clear signals that the stance here is more hawkish than had been the case toward the end of last year. The proximity of the war and the reliance on Russia for energy makes the European economy particularly at risk, with Germany particularly vulnerable to threats such as the demand from President Putin for payment in rubles for all future gas supplies.