Russia's trouble

Events unfolding in Ukraine have continued to weigh on global markets, although the stance taken by Russia looks set to have more of an impact on its domestic economy and foreign investments than on the West. Moscow's sanctions on European food imports will increase food costs and fan inflation in Russia, and an escalation of tit-for-tat sanctions will further deter international investors. Fund manager Schroders' economist Craig Botham notes that, with GDP shrinking for a second consecutive quarter, Russia has entered a recession. Russian retail sales and unemployment figures for July due this week should give further indication of the impact of President Vladimir Putin's policies. "Credit and economic growth will suffer, and it is difficult to see 2014 improving for Russia's economy," says Botham.

Global investors this week will also be looking to the US Federal Reserve and the minutes of its July meeting for further clues into its latest thinking on inflationary pressures, the employment market and the timing of rate rises. More light could be thrown on these questions when central bankers gather this week for their annual summit in Jackson Hole, where Fed chairwoman Janet Yellen is due to speak. Meanwhile, the yield on 10-year Treasury notes, which started the year at 3%, fell another 7 basis points last week to 2.36%. German 10-year Bund yields dipped below 1% for the first time last week, with yields - which move in the opposite direction to prices - down across the eurozone.

This week's bulletin also includes:

  • The news last week that the German and eurozone economy shrank in the second quarter also exerted more pressure on the European Central Bank to undertake further stimulus measures.
  • The London market continued to show nervousness as geopolitical uncertainty rumbles on through August, with the internationally oriented large-cap sector reflecting the uncertainties of global markets.
  • Slow earnings growth has continued to restrain dividend payments by UK corporates this year, with the strength of sterling also cutting into payouts in foreign currencies.
  • The Bank of England governor Mark Carney last week reaffirmed that ultra-low rates are set to endure until 2015, and the "normal interest rates of tomorrow are likely to be lower than those of yesteryear".

View this week's Market Bulletin , which contains thoughts and opinions of St. James's Place and our range of investment managers on the key issues affecting investors.

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