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Equity Markets Rebound Post Ukraine Invasion: Week Ahead

Western sanctions against Russia on Friday in response to its invasion of Ukraine helped to settle volatile equity markets.

Penalties and asset freezes affect Russia’s banking, technology and aerospace industries. And earlier this week, Germany halted the certification process for the Nord Stream 2 pipeline that shuttles natural gas from Russia to Europe’s largest national economy.

Ukranian leaders also are pushing Western leaders to ban Russia from the high security network called SWIFT that facilitates payments among financial institutions in 200 countries. That could depending on whether the crisis escalates.

U.S. President Joe Biden on Thursday told reporters that booting Russia from the SWIFT network is still on the table. On Friday afternoon, the White House said Putin and Foreign Minister Sergey Lavrov will faces sanctions and have their assets frozen, following similar moves by the U.K. and the European Union. Sanctions had already been imposed Thursday on select high-ranking Russian government officials.

Although Hong Kong’s Hang Seng Index fell 0.6 percent on Friday to 22,767.18, Japan’s Nikkei 225 ended its trading session up nearly 2 percent to 26,476.50, following sanctions including suspending exports of semiconductors and other goods connected to military organizations in Russia.

As the U.S. equity markets rallied at the open of trading, European indices responded accordingly. The CAC 40 in Paris closed up 3.6 percent to 6,752.43, while the FTSE MIB, the Italian Bourse, rose 3.6 percent to 25,773.03. In addition, the German Dax gained 3.7 percent to 14,567.23 and U.K.’s FTSE 100 rose 3.9 percent to 7,489.46. In the U.S., investors on Friday shrugged off invasion concerns following news of the sanctions, sending the Dow Jones Industrial Average up 2.5 percent to close at 34,058.75.

Fashion and retail shares, a sea of red on Thursday, ended the trading week in the green. Among the market gainers were Farfetch Ltd., up 39.4 percent to $20.92; Carter’s Inc., up 10.4 percent to $96.91; Dillards Inc., up 9.5 percent to $265.92; The RealReal Inc., up 6.6 percent to $8.43; Bed Bath & Beyond Inc., up 5.2 percent to $16.17; Macy’s Inc., up 4.8 percent to $26.36; Under Armour Inc., also up 4.8 percent to $15.57 and Capri Holdings Ltd., up 4.5 percent to $68.97.

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By mid-day, the Pentagon said Russian troops were still on the move and closing in on Ukraine’s capital of Kyiv, but were not advancing as rapidly. A senior official at a news briefing said “no population centers have been taken” and that Russia hadn’t made much headway with its air forces. However, the official said that an amphibious assault seems to be underway as Russian naval infantry appeared poised to move ashore.

Ukranian President Volodymyr Zelensky in a video address urged Western leaders to do more than slap sanctions on Putin and his inner circle and provide assistance before the “war will knock on your door.” He also tweeted that he and Biden spoke, indicating that further sanctions might be forthcoming. Meanwhile, the transatlantic military alliance NATO in a statement said it has “deployed defensive land and air forces in the eastern part of the Alliance, and maritime assets across the NATO area.”

Beyond the human cost, continued conflict could see macroeconomic, market and credit implications in the form of sustained inflationary pressures across economies via higher energy, food and metals prices, according to S&P Global Ratings. Moreover, “risk repricing that drives up borrowing costs or limits funding access for weaker borrowers” is another possibility. S&P said that companies exposed to operational and structural headwinds, as well as highly indebted small and midsize enterprises, might be unable to rebuild revenues and earnings before their financing costs rise, which could weigh on credit quality. Concerns over “profit erosion for sectors that are energy intensive or rely on consumer discretionary spending” could result in a decline in consumer and business confidence, the ratings firm said. That in turn could result in a slowdown of spending, S&P said.