Week in Review: February 18, 2022

Global equity markets ended lower in a week dominated by Russia-Ukraine tensions and Federal Open Market Committee (FOMC) headlines. Uncertainty remains elevated as investors try to manage the risks of rising geopolitical tensions in Eastern Europe and FOMC sentiment that appears to change day-by-day. The VIX ended the week in elevated territory at 27.8.

Geopolitical tensions rose throughout the week. While equity markets experienced a relief rally on Tuesday, following Russian comments indicating the removal of troops from the Ukrainian border, the reprieve for markets was brief.  By mid-week, contrary to the Russian announcement, U. S. intelligence reported an increased Russian presence on the Ukrainian border.

Markets received some clarity on the path of Federal Reserve policy this week following the release of the January minutes. The minutes suggested members supported an increase to the benchmark lending rate, but contained few details related to how far rates should be moved. Markets treated the absence of explicit discussion around a 50bp hike in March as dovish, somewhat offsetting voting-member Bullard’s hawkish comments last week. The futures market ended the week pricing in a 22% chance of a 50bp hike in March, lower than the 50% chance priced in at the end of last week.

While inflationary pressures remain, the intersection of eastern European conflict and the potential for rising rates remains unclear.