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Latest market update from Columbia Threadneedle Investments

31 May 2022


More than one hundred days have passed since Russia invaded Ukraine and the impact continues to be felt globally. The biggest repercussion is the surge in inflation, most notably for those countries with proximity to the war. “Putinflation” – a word coined by Poland’s prime minister, Mateusz Morawiecki – has resulted in double-digit inflation becoming the new normal. For example, the Bank of England expects inflation to peak at 10.2% later this year. Turkey has seen the greatest price rise of all, with the collapse of the lira and fallout from the war resulting in the CPI rising more than 70%. Our economic forecasts continue to point to growth slowing around the globe, and for inflation to peak this year. Over 2023 both will gradually slow towards trend levels.


Looking at interest rates, in the US the Federal Reserve hiked rates again by 50bps during May and at the same time unveiled plans to start reducing its massive holdings of US Treasury bonds, i.e. quantitative tightening. The Reserve Bank of Australia, which earlier this year predicted zero rate rises until 2024, surprised investors with a quarter point increase in early May. The Bank of England also raised rates during the month following the announcement that inflation might hit 10% in late 2022. While valuations have reflected the impact of changes in central bank policy expectations, in accordance with our inflation view we do not expect key developed market central banks to hike rates significantly from here.


The EU’s 27 member states agreed to ban seaborne Russian oil imports, and this combined with Germany and Poland’s willingness to reduce their pipeline purchases by the end of 2022 should see Russian oil exports to the EU decline by 90% by the end of the year. In May, half a million barrels of oil a day of Russian crude were arriving in north-west Europe, according to Vortexa, a shipping analytics company. This is a marked decline from the 1.4 million barrels before the invasion and Russia will be looking elsewhere for new buyers of its barrels. India and China have already stepped in, but analysts are questioning how much Russian oil their economies can absorb.

Finland and Sweden, two countries who are proud of their long history of military non-alignment, submitted applications to join NATO. Vladimir Putin responded by cutting electricity supplies to Finland and threatening “military-technical” action. Although both countries are currently members of NATO’s “Partnership for Peace” there is no commitment for member states to intervene should they be attacked. Their willingness to join NATO signals the deep worries about future Russian intentions in the region.

United States

After an initial exemption to sanctions, the US Treasury Department will start blocking Russian bond payments to American banks and investors, increasing the likelihood of the first default of Russia’s foreign debt in more than a century. While the likelihood of a default having major ramifications is low, it will stain Putin’s record of economic stewardship and reputational damage. It is not clear yet if Europe and the UK will follow suit.


China’s export growth in April was the slowest since June 2020. The export slowdown has removed a source of support for the economy that Chinese policy makers relied on throughout the pandemic, and alongside zero-covid policies is causing rising unemployment and a collapse of activity in many cities. However, recent relaxations of lockdown measures in key Chinese cities offer some signs of initial easing. The Caixin manufacturing PMI rose to 48.1 in May; however, this was lower than market expectations. Elsewhere, China’s imports from Russia have continued to grow since the invasion of Ukraine as sanctions have hindered Russian’s access to western market.


The war is impacting the global food system, which was already weakened by covid-19, climate change and an energy shock. Russia and Ukraine supply 28% of globally traded wheat, 29% of barley and 15% of maize. The cost-of-living crisis has already raised the number of people without sufficient food by 440 million to 1.6 billion. As the war drags on and supplies from Russia and Ukraine are increasingly limited, hundreds of millions more could fall into food poverty. Even before the invasion, the World Food Programme warned that 2022 would be a challenging year for production. China, the world’s largest wheat producer, saw poor crop yields due to delayed planting in 2021 because of heavy rainfall, and with the extreme temperatures in India, the world’s second largest producer, the threat to the supply is high. Of course, this will impact most those in the poorer economies who spend 25% of their budgets on food and where governments cannot afford to subsidise those in need.

Matt Rees, Multi Asset Portfolio Manager, Columbia Threadneedle Investments 


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Columbia Threadneedle Investments is the investment manager for the Horizon Multi-Asset Funds.

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