US and European stocks poised for best week since November 2020
US and European stocks were on track for their best week since November 2020, wiping out almost all losses incurred since Russia’s invasion of Ukraine.
On Wall Street, the benchmark S&P 500 share index was on course to finish the week about 4.8 per cent higher, just ahead of its 4.6 per cent weekly gain in February 2021 when US president Joe Biden was preparing a multitrillion dollar fiscal stimulus package to insulate the economy from the coronavirus crisis.
In Europe, meanwhile, the regional Stoxx 600 was poised to add 4.8 per cent for the week. The increase has taken the Stoxx to just a fraction below its closing level of February 23, the day before Vladimir Putin launched a full-scale incursion into Ukraine.
“We were seeing panic outflows but now investors are having second thoughts,” said Bastien Drut, chief thematic macro strategist at CPR Asset Management in Paris.
“The markets are starting to trade on fundamentals again,” he added, while warning of further gyrations ahead as the war remained unpredictable.
“Encouraging news flow on the geopolitical front has allowed risk assets to stabilise and rebound,” analysts at Bank of America said on Friday. They said that after investors yanked $20bn from global equity funds over the previous two weeks, the rate of outflows came at a “much lower pace” this week.
US shares traded flat while European stocks edged higher on Friday, even as investors warned of more tumult given uncertainty surrounding the Ukraine conflict and its effect on global economies.
Up to $230bn is also expected to flow from bonds to equities in the coming weeks as big investors including US pension plans rebuild stock market positions, in a bid to maintain their long-term asset allocation strategies.
Several fund managers said that shares of higher-quality European companies had sold off too hard in response to geopolitical tensions, despite the risks of the war causing a continued surge in energy prices and higher inflation.
“Its been quite easy to write Europe off,” said Rosie Bullard, portfolio manager at James Hambro & Partners. “But there are some fabulous companies listed in Europe and you ignore them at your peril.”
In Europe, shares of the Dutch chipmaking equipment manufacturer ASML, a longtime investor favourite, have gained almost 10 per cent this week after dropping 9 per cent in the week to March 4. UK telecoms group Vodafone has risen more than 6 per cent in the past seven days, snapping four weeks of losses. In the US, drugmaker Moderna’s stock has risen more than 25 per cent over the week.
Friday’s equity market moves came as US President Joe Biden prepared to warn his Chinese counterpart, Xi Jinping, of retaliation if Beijing actively supported Russia in Ukraine. Antony Blinken, US secretary of state, also cautioned there were no signs President Vladimir Putin was “prepared to stop” Russia’s invasion of its neighbour.
“The actions that we’re seeing Russia take every single day, virtually every minute of every day, are in total contrast to any serious diplomatic effort to end the war,” Blinken said on Thursday.
“The one thing we can expect is continued volatility,” said Mary Nicola, multi-asset portfolio manager at PineBridge Investments.
“The comments from China had been supportive for the market,” she added. “The situation around Ukraine and Russia remains very fluid and that continues to be the main drag on market sentiment.”
In Asia, Hong Kong’s benchmark Hang Seng index edged 0.4 per cent lower and the CSI 300 index of Shanghai and Shenzhen-listed stocks gained 0.7 per cent, recovering from heavy falls earlier in the session.
In commodity markets, oil prices rose as investors weighed the impact of sanctions against Moscow.
Brent crude, the international benchmark, slipped 0.3 per cent on Friday to about $106 a barrel.
Both Brent and the US crude benchmark had closed more than 8 per cent higher on Thursday following a warning from the International Energy Agency that a fall in Russian crude supply to the global market threatened to become the “biggest supply crisis in decades”.