WeekWatch

The unfolding crisis in Ukraine dominated the headlines last week as Russian forces invaded the country during the early hours of Thursday morning. The event has sparked severe humanitarian concerns, with hundreds of thousands of refugees already reported by some news outlets, as civilians look to flee the fighting.

The resulting volatility in global markets was severe with markets retreating sharply as markets opened on Thursday, only to regain some of the lost ground as the day progressed with the recovery extending into Friday’s trading. In response, countries around the world introduced sanctions against Russia. Germany suspended the certification of the controversial gas pipeline Nord Stream 2 pipeline, which would have allowed Russia to directly supply Germany with gas, bypassing Eastern Europe.

Reflecting on the events of last week, and the impact on the Russian stock market, Neil Shearing, Group Chief Economist at Capital Economics noted: “The sanctions have caused turmoil in Russia’s financial markets, with the Ruble opening [on Monday 28/02/2022] down 30% against the dollar in offshore trading and falling by much more (~70%) on local retail currency exchanges.

“These are the conditions in which runs on local banks begin. The Central Bank of Russia has this morning raised interest rates to 20%. All of this will accelerate Russia’s economic downturn – a fall in GDP of ~5% now looks likely.”

Commenting last week, Keith Wade, Chief Economist and Strategist at Schroders said events in the Ukraine were likely to support an environment where inflation and stagnation of economic output persists. He added: “We’re adjusting upwards our forecast for inflation, while taking our forecast for growth downwards.

“We expect Europe to be the region that takes the biggest hit to both growth and inflation. Globally the effects are likely to be less substantial as we were heading in a stagflationary direction, anyway, given that the tightness of supply chains and labour markets is worse than expected.”

In the US, the S&P500 actually closed the week in positive territory with a +0.8% gain whilst the intraday move in the Nasdaq, which swung by 6.8% on Thursday, was the most significant since the start of the COVID-19 pandemic in March 2020 . The FTSE100 and FTSE250 in the UK both concluded the week in the red, the former declining by -0.3% and the latter by -2.1% with the fall in sterling impacting domestic companies. In Europe, downwards moves were sharp with the German DAX and French CAC40 retreating by -3.2% and -2.6% respectively. Meanwhile in Asia, the Nikkei 225 fell by -2.4%.

Unsurprisingly, the rally in oil prices continued due to concerns of major supply disruptions as a result of the war in Ukraine. Russia is the third largest producer of oil behind Saudi Arabia and the US and the events of last week saw Brent crude rise by +5.0% to $97.98 a barrel. Gold, which had initially rallied as events unfolded, concluded the week modestly lower (-0.4%) at $1,887 an ounce. Copper prices also retreated due to the risk-off sentiment with the metal declining by -0.9% to $9,918 a tonne.

Week Ahead

The Labour Market Report is the standout release due from the US this week with the headline unemployment rate expected to have declined to 3.9%. The US economy is expected to have added a further 400,000 new jobs during January. Other US economic data due for release includes the latest Purchasing Managers’ Index (PMI) equivalents from the Institute for Supply Management. PMIs use regular surveys from businesses to generate economic indicators with fund managers can use to help make investment decisions. Final PMI’s for January are also due from the UK this week, alongside the latest consumer borrowing report from the Bank of England.

It’s a busy week for Eurozone data with CPI inflation amongst the main figures due. Retail sales and unemployment figures are also published later in the week. Commentators will be especially interested in inflation rates, given the rising fuel prices, and high inflation already recorded in the UK and US. It’s also a busy week for Japanese data with industrial production, retail sales and unemployment all released throughout the week.

There’s been a lot of change to the retirement-planning landscape in recent years, but one thing remains the same: no matter how quickly the market evolves, pensions are still the single most important building block for long-term savings.

However, they don’t need to be the only such block. A good retirement plan will typically include a variety of different assets, with pensions at the core, but used alongside other forms of investment.

“More people are using ISAs to save for retirement because of the flexibility they offer,” says Tony Clark, Senior Propositions Manager at  St. James’s Place. “But ISAs don’t have the same tax efficiency as pensions, so it’s about being mindful of how you approach this and using ISAs in the most tax-efficient way that complements your pension.”

The money you pay into an ISA has been taxed beforehand, but there’s no Income Tax due on the interest or dividends you receive. Meanwhile, there’s no tax due when you pay into a pension (subject to certain limits) because you get tax relief, but Income Tax is charged on any withdrawals above the 25% tax-free cash entitlement.

Also, don’t forget the pension payouts you’ll get automatically, such as the State Pension and any Defined Benefit pension entitlement you may have. These should be factored into your thinking about where you take your pension income from. “Check your National Insurance contributions record and make sure it’s fully funded so that you maximise your State Pension when the time comes,” says Tony.

Understanding the various investment vehicles, the possible tax implications and how they work as part of your wider financial plans is crucial. “It’s a big task, but that’s what a financial adviser will help you with,” says Tony.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

“The horror of what is unfolding in Ukraine is becoming clear to Western audiences and that in turn is putting huge pressure on Western politicians.”

British Prime Minister Boris Johnson explains the increasingly stringent sanctions being imposed on Russia

Schroders are fund managers for St. James’s Place.