Client Weekly Update – Friday 25 February

Local update

A strategy outlining Jersey’s COVID-19 de-escalation and recovery plans as the Island comes out of the emergency phase of the pandemic was published by Jersey’s Government yesterday.

The positive effect of high vaccination coverage and lower disease severity, shown both in global data and in Jersey’s recent data, has allowed the Government to step down from managing COVID-19 as a public health emergency.

The COVID-19 Post-Emergency Strategy sets out plans for how Jersey intends to live with and manage the virus over the next few months. The Strategy includes the following key priority areas:

  • The Government will continue to provide free PCR testing to all symptomatic Islanders and those with a positive lateral flow test (LFT) result until at least June 2022. Additionally, free LFTs through the home testing programme will be available until at least June 2022.
  • Vulnerable Islanders at greater risk continue to be protected through vaccination and testing, but also through new free community-based treatments.
  • Clinical pathways to support those living with Long Covid have been set up.
  • The removal of mandatory self-isolation will be implemented before the end of March. Until this time, Islanders must continue to isolate when they receive a positive PCR test result.
  • The frequency of COVID-19 routine data reporting will be reduced from daily reporting to weekly reporting before the end of March.
  • Vaccination remains the first line of defence and will continue to be delivered through a centralised vaccination model for the time being as the best way of maintaining our high vaccination uptake. We will continue to follow the guidance provided by the Joint Committee on Vaccination and Immunisation (JCVI) and UK Chief Medical Officers, including the latest JCVI advice to offer spring vaccination doses to eligible Islanders, and universal vaccination for 5 to 11-year-olds.


The de-escalation of COVID-19 measures, including the removal of mandatory mask-wearing and the suspension of the Safer Travel policy, began in January as a result of the Island’s high vaccination uptake and the reduced risk posed by the current dominant variant, Omicron.

The step down from emergency status allows the Government of Jersey to now focus their investment on COVID-19 recovery and future wellbeing. The Strategy contains a range of projects designed to start tackling the harms caused by the pandemic, and this will be a focus for the Government in 2022 and future years.

In view of the Russian invasion of Ukraine this week and the wider impact the offensive may have on financial markets worldwide we thought it might be useful to provide comment.

We are closely monitoring events that we sincerely appreciate have a significant humanitarian impact on Ukrainian citizens and wider implications for the Western world in general but how does this relate to our clients’ investments and pensions as we brace ourselves for a period of uncertainty and instability.

Whilst we try to briefly assess the economic realities that the Putin Invasion may have later in this communication, we hope the following is helpful.

Russia attacks Ukraine: Questions and answers

The Russia-Ukraine conflict is not new, but it has intensified in recent days. Russia’s latest actions raise the likelihood of sustained military conflict between the two nations.

 At a high level, our Investment strategies do not have significant direct exposure to Russia. Events have accelerated in Eastern Europe with Russian forces moving aggressively into eastern Ukraine and reports of explosions in parts of western Ukraine. The Russia-Ukraine conflict is not new, but it has intensified in recent days.

Russia’s commencement of overt attacks against Ukraine follows its unilateral recognition of the independence of Ukraine’s two easternmost regions, Luhansk and Donetsk (known together as the Donbas). These actions raise the likelihood of sustained military conflict between the two nations.

Many Western countries have responded by ratcheting up sanctions on Russia, including Nord Stream 2 AG and high-profile Russian individuals. This raises key questions about the global economy and financial markets.

 How likely is a continued escalation of the conflict?

The current state of affairs in Ukraine is almost certainly not Russia’s desired endgame and there may well be more deterioration to come. The situation is fluid and could go on for months. Perhaps the most extreme scenario would see the conflict extend to the Baltic countries of Estonia, Latvia and Lithuania as they are members of the EU, euro area and NATO. Fortunately, this appears to be a remote risk at present.

Nevertheless, because it would represent a game-changing escalation, we should not discount this as a possibility.

What impacts could escalation within Ukraine—and subsequent additional sanctions from the West—have on commodity prices? At what point would higher prices start to dent global business activity and consumer demand?

This is a critical risk, but global economic activity has remained strong as the scope of lockdowns and other pandemic measures continue to recede. We don’t think the world economy is at risk of recession in the near term.

While high commodity prices are favourable to Russia, its economy is heavily dependent on external trading relationships. Energy price pressures could also hasten negotiations with Iran to bring its oil production back onto global markets.

Furthermore, both OPEC (that is, the Organization of the Petroleum Exporting Countries) and non-OPEC oil production remains below pre-pandemic levels, which means there’s spare capacity that could help offset high prices

What would the combined effects of an energy price shock be on inflation, interest rates and the expected trajectory of central bank policies?

Central banks were already in a difficult situation given that both ongoing supply bottlenecks and robust demand pressures were causing inflation to run hot. While adding a high-profile geopolitical conflict to the mix could further complicate central bankers’ jobs, this was already a well-established concern.

Would a relatively successful incursion or invasion by Russia embolden China with regard to Taiwan, raising the risk of military conflict in Asia?

First, let’s define a successful invasion from Russia’s perspective as one that neither invites a coordinated military response nor cripples the Russian economy via sanctions. While this could impact the strategic calculus for China, this was already a well-established risk.

At what point might Western sanctions begin to undermine confidence and activity in emerging markets more broadly?

This is a valid concern, but emerging-market assets have been lagging developed-market counterparts for some time. Most risk assets are likely exposed to further escalation of the conflict, but in the case of emerging markets, risk premia are already fairly wide (and have widened further in the case of Russian and Ukrainian assets).

There is a wide range of risks and ever-present uncertainties associated with the conflict in Eastern Europe. While there are no simple answers, investors should keep in mind that geopolitical conflicts occur with a fair amount of regularity.

Russia’s aggression toward Ukraine will not be the last geopolitical conflict with the potential to impact markets and portfolios. These situations are just one of the many risks that call for sound portfolio diversification and disciplined rebalancing.

As bleak as the news about Russia and Ukraine may appear, the most important action investors can take to ensure peace of mind, is to confirm that their long-term strategic portfolio allocations are aligned with their investment objectives and tolerance for risk.

Mixed markets

​​The FTSE 100 opened this morning, around 88 points higher at 7,295 and up 1.25%.

European markets are broadly higher today with France’s CAC 40 is up 0.41% and Germany’s DAX is up 0.13%.

US markets ended the day in positive territory yesterday after a weak opening, with the Dow Jones advancing 92 points to 33,224 and the S&P 500 climbing 63 points to 4,289.

The Nikkei 225 index in Tokyo surged over 2% on Friday, the Kospi in South Korea gained 1.6%, and the Shanghai Composite gained 0.6%.

Economic realities of Putin invasion

The economic consequences of Russia’s invasion of Ukraine are expected to be dire.

The combination of crude oil prices above $100 and wholesale gas prices around £3 per therm would result in a peak in inflation of 8% or more, and, more significantly, it would endure for a longer period of time.

As a result of the current hike in the average market gas price, crippling increases in family energy bills are already taking place. It is now climbing even higher. Another increase in average bills of the magnitude seen currently is possible.

Some industry analysts believe that by the autumn, typical yearly bills might reach an astonishing £3,000 each year.

UK sanctions target Russian banks

Major Russian institutions will be barred from the UK financial system, and oligarchs will face fresh penalties, as stated by Boris Johnson.

The prime minister told the House of Commons they were “the largest and most severe package of economic sanctions that Russia has ever seen”.

Aeroflot, Russia’s official airline, will also be barred from landing in the United Kingdom.

It comes on the heels of Moscow’s invasion of Ukraine, which started with air attacks in the early hours of Thursday morning.

Mr Johnson told MPs that Russian President Vladimir Putin was a “bloodstained aggressor” who would “stand condemned in the eyes of the world and of history” for invading Ukraine.

The prime minister announced the steps after saying the UK and its allies had “tried every avenue for diplomacy until the last hour,” but he believed Mr Putin had always been intent on attacking Ukraine.

Mr Johnson stated that the G7 group of world leaders had decided to work together to “maximise the economic price that Putin will pay for his aggression”.

He also indicated that Belarus would face penalties for its role in the attack on Ukraine.

Rise in oil prices

As Russia’s invasion of Ukraine entered its second day, oil prices climbed on Friday due to investor concerns about limiting supplies.

Brent crude oil jumped more than 2% to (£75) per barrel as conflict threatened to increase near Ukraine’s capital, Kyiv.

However, Asian stock markets recovered as investors reviewed Western sanctions on Russia.

While the penalties imposed from sanctions include freezing bank assets and cutting off state-owned firms, they did not include cutting Russia off from the Swift international banking system or targeting its oil and gas exports, which some experts argued had aided market recovery.

‘Chaotic’ youth job scheme failing

A £1.9 billion scheme to help young people get jobs is benefitting significantly fewer individuals than expected, according to a committee of MPs.

The Public Accounts Committee (PAC) stated that it welcomed the goal of providing targeted assistance to young workers during the pandemic, but that the £1.9 billion “emergency intervention” Kickstart scheme has benefited significantly fewer people than expected.

“Early delivery was chaotic,” the MPs wrote in their Friday report.

According to the administration, the strategy has assisted 130,000 young people in finding work.

The Department for Work and Pensions (DWP) now expects Kickstart to serve 168,000 young people, down from the original figure of 250,000, according to the report.

The program, which will begin in September 2020, is aimed at young people who are in danger of long-term unemployment.

The report said the DWP “neglected to put in place basic management information that would be expected for a multi-billion-pound grant programme”.

Covid’s economic impact on young people was not as severe as initially expected. However, the researchers discovered that the DWP has no idea why many young people who registered up for Universal Credit early in the pandemic have not since been removed from the benefit and placed in Kickstart employment.

Free covid testing ending

Business organisations have stressed that the prime minister’s ‘Living with Covid’ initiative must not place the cost and duty of testing on employers.

On Monday, Boris Johnson announced proposals to repeal practically all Covid laws in England in the House of Commons.

Free testing and self-isolation rules will be phased down, as will self-isolation payments for low-income people. According to the British Chambers of Commerce, the government “must not impose public health decisions on enterprises.”

“Access to free testing is critical to managing workplace sickness and maintaining consumer confidence,” said Claire Walker, the company’s co-executive director. “If the government removes this, companies must still be able to access tests at a reasonable cost,” she added.

Matthew Fell, a policy director at the Confederation of British Industry (CBI) also said that free testing benefits businesses. “While free testing cannot continue forever, there is a balance to be struck between confidence-building and cost-cutting. Mass lateral flow testing has kept our economy open and firms continue to believe the economic benefits far outweigh the costs.”