Market Update

In the wake of disturbing reports of civilian casualties in Ukraine, the EU, G7, and the US have joined forces to escalate pressure on Vladimir Putin by coordinating additional sanctions against Russia.
These latest sanctions encompass comprehensive measures, including the US imposing full blocking sanctions on Russia's largest private bank, Alpha Bank, and prohibiting new investments in the Russian Federation by US individuals.
The EU, on the other hand, plans to implement bans on various imports, most notably coal, which presents a more feasible target for the EU to sever compared to oil and gas. These imports are estimated to be worth around 4 billion euros annually, with countries like Poland, Germany, and the Czech Republic being among the EU nations most dependent on coal.
Given the EU's commitment to the Paris Agreement, which includes a pledge to rapidly decarbonize its power sector, these sanctions could align with the EU's long-term objectives. In a further show of support, Japan also joined the sanctions by announcing a ban on Russian coal imports.
Global markets have displayed a relatively muted response to this week's sanctions compared to earlier rounds, indicating that markets have factored in and prepared for the consequences and repercussions of the ongoing conflict.
In a sign of the Ruble's recovery, Russia reduced interest rates on Friday from 20% to 17% to bolster the economy. Although a 3% rate reduction might appear significant in a standard monetary policy context, it represents only a modest easing from the exceptionally high rates witnessed over the past month.
The most significant development this week was the release of the Federal Reserve minutes from their March meeting, revealing that many members were in favor of countering inflation with one or more 0.5% interest rate hikes. This stance, while not surprising, underscores the Fed's commitment to measured and data-dependent policy adjustments. It is important to view this in perspective, as the Fed's indication that they might gradually raise interest rates by 0.5% in response to persistently high inflation is a far cry from immediate and drastic rate hikes.
The Fed minutes also shed light on their quantitative easing plans, disclosing their intention to tighten monetary policy by reducing their balance sheet by up to $95 billion per month. It's worth noting that the balance sheet expanded significantly during the pandemic to provide economic support, so the central bank has a substantial amount of asset shedding to undertake before returning to pre-pandemic levels.
Following the release of the minutes, markets experienced a mid-week decline but rebounded toward the end of the week.
Despite the Easter holidays resulting in a shortened trading week for some key markets, the upcoming week is set to bring a slew of critical data releases, including Chinese, UK, and US Consumer Price Index (CPI) figures, UK employment data, and the European Central Bank's interest rate decision.