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The Cambridge Weekly – 28 February 2022


28th February 2022


The Cambridge Weekly

Back to the past

As noted in our update on Friday, the global political theatre that Putin’s invasion of Ukraine brought about marks a paradigm shift that must not be underestimated, and is probably as defining as the opening up of the Soviet Union under Gorbachev in the mid-1980s. As this week’s title suggests, for some of us it invokes memories of the cold war era of the West vs the USSR in the ‘70s and ‘80s.

It is even more remarkable then, that stock markets have rallied back to roughly where they stood this time last week. The same cannot be said about Russian asset prices, which have roughly halved since last autumn as the chart below illustrates. Perhaps this indicates who markets believe will ultimately pay for Putin’s megalomania.

Bond market inferences

Markets shook after the Ukraine crisis reached boiling point last Thursday, as the broad sell-off in equities suggested a ‘risk-off’ passage in capital markets. This was backed up by moves in bond markets, where the price of government debt increased as the demand for safe assets rose. Before the current tensions, yields (moving inverse of bond prices) were climbing steadily throughout the year – pushed up by the prospect of a sharp tightening of monetary policy. But now we are seeing a stabilisation of this trend, with yields coming down from the peak reached two weeks ago.

Flash PMIs suggest a more promising path

Amid the concern regarding Ukraine, investors might have missed some positive economic data that would normally have been front and centre of market news. In data collected during early February, as the Omicron wave died down across the US and Europe, business sentiment improved substantially. This is according to the latest ‘Flash’ Purchasing Managers Indices (PMIs), which measure business confidence across a range of factors and return a score out of 100 (where a score above 50 indicates expansion). The US manufacturing sector registered a two-month high of 57.5 in the latest survey, while the Services Business Activity Index came in at 56.7 – also a two-month high.

Read the full commentary here