“Today’s truth is not that of tomorrow” to quote the Belgian novelist, Johann Dizant. This could summarize what happened in the markets at the end of February.

Safe-haven assets rallied and stocks plunged to start the week as Russian President Vladimir Putin confirmed that Russia had recognized the independence of Moscow-backed rebel regions Donetsk and Luhansk in Eastern Ukraine. Russian troops launched a devastating attack on their neighbour. At the time of writing this market review, Russian forces are on the outskirts of the capital, Kyiv, and their advance looks inexorable in spite of the Ukrainian soldiers’ bravery. They are left to their own devices. NATO countries will not engage in warfare against Russia.

Western powers responded to the Russian invasion by levying softer-than-expected sanctions. As a result of this weakness, Wall Street bounced back in a late-session rally Thursday, with battered sectors in demand. Russia’s MOEX equity index which had dived 39% over the first four days of the week jumped 20% Friday, as Putin seemed to be ready to negotiate a deal over Ukraine’s “neutrality.”

The S&P 500 eventually clawed its way back to positive territory, gaining +0.82% week-over-week, though volatility remained elevated (VIX at 27.59). The Dow Jones Industrial Average was flat and the Nasdaq Composite gained +1.08%. Small cap stocks did even better (Russell 2000 up +1.57%).

By contrast, European and Asian markets closed lower. The MSCI EMU fell -2.69% while the FTSE edged down -0.32%. Japan’s Nikkei lost -2.38% and the Shanghai Composite slid -1.13%. The worst performance came from emerging markets (MSCI EM down -4.85%).

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The bounce after the collapse was fuelled by a comeback of beaten-down sectors. Health care (+2.71%) and real estate (+2.69%) were the best performers, the latter snapping a seven-week losing streak. Communications services were also in demand with Meta Platforms up +2.10% (-37.42% YTD) and Google-Alphabet up +3.11% (-7.02% YTD). Energy finished in positive territory (+1.31%) though the sector gave up its initial gains as oil prices eased (WTI crude closing at $91.59/barrel, +0.57% WTD) after crossing $100 Thursday. Information technology fared well too (+1.29%), helped by Microsoft (+3.26%). Among the bigger losers for the week, consumer discretionary was the worst performer (-2.16%), once again weighed down by Tesla (-5.50% WTD, -23.36% YTD). It’s worth noting that the U.S. consumer confidence index fell to 110.5 in February but remained ahead of the consensus of 110.

Bond yields rise again

On the interest rate front, Treasury yields resumed their upwards momentum with the U.S. 10-year T-note rising from +1.93% to +1.97%. The yield on German 10-year government bonds gained 4bps at +0.23%.

Prices of IG corporate bonds took a nosedive. They plunged -0.71% in Europe and -0.93% in the U.S. High-yield bonds were sold off in Europe (-0.95%) while they reversed their negative trend in the U.S. (+0.62% after five negative weeks in a row). Unlike the previous week, emerging debt underperformed the other bond asset classes (-2.84% in local currencies). In currency trade, the EUR-USD fell -0.83%.  Elsewhere, gold retreated at the end of the week (-0.49% WTD, spot price at $1,889.34/Oz) after hitting its highest in 8 months Wednesday.

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