Weekly Market Insight

Weekly Market Insight – 28th February

28th February 2022

Global oil spenGlobal oil spend set to hit an eight year high in 2022 as prices rise and demand recovers, Russian invasion of Ukraine prompts a wave of sanctions and market volatility and Dublin airport passenger data confirm the travel recovery is underway. All these stories and more are covered in this week’s insights update from BlackBee.

Economy

Last week’s market and economic backdrop was dominated by geopolitics as a result of Russia’s invasion of Ukraine. The international community responded swiftly to the invasion. The US government launched a range of sanctions targeting both Russian financial institutions and individuals. In addition, the EU implemented similar sanctions while Germany took the significant decision to halt approval of Russia’s Nord Stream 2 gas pipeline, a project which was meant to significantly increase the flow of Russian gas into Germany.

An armed conflict on the edge of Europe is likely to have negative repercussions for the global economy. Certainly, the potential conflict casts a shadow over the recovery in Europe in 2022 although for the global picture the bigger impact could come through higher energy prices. Predictably oil and gas prices jumped as a result of the Russia-Ukraine news with oil prices moving ever closer to $100. Our chart of the week this week shows that the global spend on oil is set to climb to an eight year high in 2022 as prices have risen and demand has recovered from the COVID pandemic.

Our chart shows that the scale of this global spend on oil is reaching a point where in our opinion it is likely to weigh on economic activity, particularly in emerging regions of the world which are intensive users of oil. In the short run it appears that higher prices are here to stay which puts even more emphasis on increases in OPEC and US production to stabilise prices. Higher short-term energy prices are also likely to keep upward pressure on inflation rates in the short term. However, we don’t think this further changes the outlook for central bank policies. While central banks will acknowledge the higher energy price pressures and the impact on inflation, we think most are also likely to flag possible downside risks to growth associated with the conflict – particularly in economies geographically nearby such as the Euro zone. 

Equities

Not surprisingly the geopolitical news surrounding Russia and the Ukraine hit equity market sentiment last week with a number of stock markets suffering losses and the S&P 500 Index of US equities temporarily entering correction territory (that is a fall of 10% from its recent high). The news of impending economic sanctions against Russia hit its assets hard with Russian equities falling by 25% over the week and the rouble falling by 8% versus the US dollar.

Bonds

Government bonds again struggled to make gains last week even in spite of the Russian invasion of Ukraine with bond yields drifting higher (and bond prices drifting lower) towards the end of the week. On the credit side performances were mixed, following the lead of risky assets more generally.

Commodities

Again, commodity markets were the big winners last week with the Russia-Ukraine crisis pushing up energy prices and driving safe havens like gold and silver higher also. As mentioned above, the crisis emphasises the need to boost energy supplies around the world to stabilise prices. In addition, it also places renewed emphasis on international talks around ending Iranian sanctions considering the country could represent part of the solution to boosting global oil output.

Sector News:

Travel & Hospitality – Dublin airport passenger data confirm travel recovery is underway

Data on January passenger numbers into Dublin airport published last week, confirmed that although traveler numbers are still below pre COVID levels, the recovery in leisure travel into Ireland is underway. Nearly one million passengers arrived at Dublin airport in January, 53% below the level recorded in January 2020 but 364% higher when compared to the same period in 2021. The number of passengers travelling to other European countries increased by 329% over the same period in 2021 but remained 42% lower than volumes seen in the same period in 2020. UK traffic was 710% higher when compared to 2021 but still down 67% on 2020 while North American air travel also soared by 500% over 2021 levels but was still down 53% when compared with 2020.  Further good news for Dublin airport came via the announcement that EGYPTAIR is launching a weekly schedule of four flights from Dublin to Cairo, with the company’s CEO citing Dublin as a significant strategic hub connecting the western world to the east given Cairo’s standing as the largest city in the Arab world.