Abbey Road Investment Views, Mar. 2022

The Ukraine war and investors

• The outcome and implications are very uncertain

• Oil and gas prices are key for Western economies

• Risk of “stagflation”. Growth was already slowing

• Stock market valuations have fallen – Focus p2

• Market volatility has risen and may remain high

Overview

As the tragic events unfold in Ukraine, uncertainty is roiling markets, particularly in Europe. President Putin faces fierce Ukrainian resistance, unease at home, and pariah status in the

Western world. A quickly negotiated peace is possible, though that may be wishful thinking. But if Putin is backed into a corner the situation could also escalate.

What matters most for Western economies is whether oil and gas prices surge. Higher prices will add to the inflation spike but also hit consumers again, with consumer confidence in the

US already well below levels at the height of the first Covid wave in 2020 (see chart). Sanctions on Russian banks seem to be carefully calibrated to allow oil and gas to flow freely and so far there is no interruption to fuel supplies. But that could change or Russia could deliberately withhold supplies.

A large surge in prices would add to inflation worries in the US and growth worries, particularly in Europe. Meanwhile early indications are that US Q1 GDP growth could be near zero or even negative. This, together with the additional shock of the invasion will keep the Federal Reserve cautious as it tightens, though a 25 basis point rise in March and several further rises this year remain likely.

Download the full Investment View of the month below.

Abbey Road Investment Views March 2022

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