Feeling APP-y

Weekly update
  • Weekly market update
  • 5 minute read

A good week for

  • European equities rallied hard, gaining c. +4% in sterling terms
  • UK equities advanced c. +3%

A bad week for

  • Equities declined -2% or more across the US, emerging
    markets and Japan
  • Bonds weakened broadly


At its March meeting the European Central Bank (ECB) surprised markets by announcing a quicker exit from its QE Programme. ECB had been expecting to end the Pandemic Emergency Purchase Programme (PEPP) in March, but had planned to soften the market impact by increasing the Asset Purchase Programme (APP) temporarily, and then tapering down purchases by EUR10bn per quarter. However, Governing Council President Christine Lagarde revealed the Bank now plans to taper the APP purchases by 10bn per month rather than per quarter, with a view to ending the APP in Q3. According to the new plan, the Bank will still be easing liquidity conditions into June. Whilst such a move had been hinted at in the February meeting, market participants were surprised by the decision to go ahead given the risks to Eurozone growth as a result of Russia’s war on Ukraine. The ECB framed this as seeking maximum optionality, as it faces barriers to tightening monetary policy, before the APP is over.


A growing number of firms are pulling out of Russia after mounting pressure. While some firms halted Russian operations early, with many citing operational difficulties, several prominent consumer brands continued. These firms have come under criticism from shareholders for supporting Russia’s political regime, forcing many to halt business in the region. This decision could have significant economic impact on these businesses, as President Putin has suggested Russia will seize assets of companies no longer operating there. Some also argue that Putin, rather than the Russian people, is to blame for the war. Some food companies have halted investment in Russia, but said they would continue providing essentials.


Oil prices had a volatile week as market participants speculated over whether oil supply would increase. With Russian oil liable to be subject to sanctions, global supply is shrinking, against a backdrop of tight supply and demand. The United Arab Emirates, a member of the Organisation of Petroleum Exporting Countries (OPEC), was believed to have encouraged the group and its allies to raise output, but the energy minister later changed tack. On Friday, world leaders halted talks with Iran to broker the removal of US sanctions on Iranian oil in exchange for curbs in Iran’s nuclear ambitions. European Union foreign policy chief Josep Borrell confirmed negotiations had come very close to agreement but had been halted due to ‘external factors’.

Food prices

The World Food Programme has warned Russia’s war in Ukraine could send global food prices soaring, with the populations of lower income countries feeling the brunt of the impact. Ukraine and Russia are both major exporters of grains, exporting about a quarter of the world's wheat and half of its sunflower products. Much of this is exported to Africa, the Middle East and Asia. Food makes up a greater share of expenditure for lower income households and food scarcity and unaffordability has often sparked political unrest.


Relations between the US and China remain frayed, with Beijing remaining tight-lipped over Russia’s actions. Ahead of a US-China summit this week, a US official confirmed that Beijing would ‘absolutely’ face consequences if it helps Russia evade international sanctions. Meanwhile, the US Securities Exchange Commission continues to scrutinise US listed Chinese stocks. The SEC has identified five firms, which could be delisted if they do not allow a US accounting firm to conduct an audit of their financial statements for three years in a row.


Important information
The information contained in this article is believed to be correct but cannot be guaranteed. Past performance is not a reliable indicator of future results. The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor may not get back the original amount invested. Opinions constitute our judgment as at the date shown and are subject to change without notice. This article is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation. Where links to third party websites are provided, Close Brothers Asset Management accepts no responsibility for the content of such websites nor the services, products or items offered through such websites.


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