Conflict in Ukraine continues to dominate the headlines. Financial markets remain exceptionally sensitive to any hints of diplomatic progress, with sentiment shifting by the hour. Meanwhile, investors must keep a weather eye on the interplay between economic growth, inflation and interest rates.

US: Warning signs from the bond market

US stocks ended the week broadly flat, with energy stocks lagging after President Biden authorised a record release of oil from the country’s strategic reserves, helping force the price of a barrel of oil back below $100. However, the main point of focus for investors was to be found in the market for US government bonds, were a closely watched recession signal flashed a warning on Thursday.

Japan: Economic stimulus required

The Japanese market stood out, falling in a week that was generally positive for global stock markets. The Bank of Japan’s Tankan survey pointed to declining confidence among the nation’s large manufacturers – the first since the depths of the pandemic. Questions over the outlook for Japan prompted Prime Minister Fumio Kishida to confirm that plans to stimulate the economy will be unveiled later this month.

China: “Zero Covid” policies are weighing on growth

With relatively few of the old and vulnerable having received three vaccine doses, the Chinese state is compelled to continue with its “zero covid” policies, locking down several districts, including key industrial regions such as Shanghai, in the face of a wave of omicron infections. However, the stock market gained on the expectation that the authorities will respond with a meaningful plan to help support the economy.

Europe: Energy security, sanctions and inflation – a heady brew

Rumours of energy rationing greeted the news that European leaders would refuse to pay for Russian oil and gas in roubles, as demanded by Vladimir Putin. However, sentiment rebounded as it became clear that a work-around solution will enable European purchasers to keep the lights on. Meanwhile, record high inflation prompted speculation that the European Central Bank will be forced to raise interest rates sooner rather than later. However, the bank’s chief economist countered by pointing to the economic fall out from the conflict in Ukraine, suggesting policy should be loosened if the economic outlook deteriorates.

UK: Business and consumer confidence are in decline

Defensive sectors such as health care, consumer staples and utilities led UK stock market indices higher, with more economically sensitive areas such as industrials, consumer discretionary and energy lagging. Though data showed the UK economy grew faster than previously thought in the final quarter of 2021, surveys pointing to low confidence among businesses and consumers clouded the economic outlook.

The Omnis Managed funds, Openwork Graphene Model Portfolios and Omnis Managed Portfolio Service provide you with a diversified asset allocation in line with your Attitude to Risk, investing in Developed Market Equities, such as UK, US, Europe and Asia Pacific as well as Emerging Market equities.  Cautious and Balanced investors will also have significant holdings in UK and Global Bonds, as well as Alternative Strategies.  We believe this multi-asset approach aims to minimise global equity market falls in volatile periods.  Past performance is not a guide to future performance.  The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations.  You may not get back the amount you originally invested.

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