Andelsblatt: How Putin’s actions affect capital markets

“This further increases uncertainty” – Stock markets under the spell of war.

Putin’s actions in Ukraine, with increasingly visible consequences for the global economy, dominate the capital markets, according to an analysis published today by Handelsblatt. In fact, according to the German financial publication, inflation could reach 7%.

Prices in the capital markets reflect the freezing of the terror for the war in Ukraine, it is noted. According to strategic analysts, estimating international economic events is becoming increasingly difficult. Thus, investors are preparing for further weeks of uncertainty, even as energy prices and interest rates continue to rise.

Concerns about the evolution and consequences of Russia’s attack on Ukraine are growing, says Robert Greil, chief investment strategist at Bank Merck Finck. “Putin’s demand to pay in rubles for gas supplies further increases the uncertainty on the commodity side,” he said.

In his view, it is becoming increasingly clear that a significant short-term relaxation is unlikely, especially in terms of energy prices. The Last week, Russian President Vladimir Putin ordered gas to be delivered only in exchange for the Russian ruble.

Higher energy prices are likely to remain the driving force behind consumer prices in the coming months, adds Hartmut Preiß, an analyst at DZ Bank. Next week, some strategic analysts expect inflation data in Germany and Europe to show a seven before the decimal point, as in the US.

Inflation in the US rose to a 40-year high of 7.9% year-on-year in February. In the euro area, inflation in February was 5.9%.

Preiß is also concerned: “Russia’s invasion of Ukraine is a serious and difficult-to-calculate threat to the global economy,” he said. Not only the new significant increase in energy prices significantly increases inflationary pressures.

Also, the Corona Omicron variant remains a major challenge for the recovery of the global economy, as Preiß points out. China’s ongoing zero-consumption strategy, in view of the significantly higher pollution there, is once again leaving international supply chains tense for the time being.

Possible interest rate hikes are considered a financial risk

The stock markets ran out of power last week. Leading indexes on New York’s Wall Street closed the week with mixed results. The overall S&P 500 index rose slightly, while the technology Nasdaq fell slightly. In Europe, the top indices, such as the German Dax and the top index of the Eurozone Euro Stoxx 50, rose slightly.

European indices lost slightly. Thanks to the good economic data so far, prices have remained rather stable. However, investors are now holding back more clearly, having bought shares that had fallen last week due to the war. Dax rose almost 6%, its highest performance in a year and a half.

Strategic analysts now expect greater business uncertainty as well, as traces of high production costs and a lack of intermediate products are likely to be more pronounced in business data. Although the profit forecast trend remains relatively “stable”, growth is slowing down, says Marco Valli, head of research at the large Italian bank Unicredit. He considers the forthcoming reporting period for the first quarter of 2022 as a test for profit estimates.

Investors and strategic analysts see the expected interest rate hikes as another financial risk. “Central banks have decided to maintain their credibility at all costs in the fight against inflation,” warns Peter de Coensel, head of Belgian asset manager Degroof Petercam. This is done even at the cost of increasing the risks of recession and their realization, he says.

In the US, the majority of investors expect the US Federal Reserve to raise interest rates by half a percent at its next meeting in early April, twice as much as in mid-March. At the European Central Bank (ECB), Council member Frank Elderson does not rule out an increase in interest rates this year.

The price of oil is rising after the air raid on Saudi Arabia

In this context, equity investors are paying increasing attention to bond yields, especially in the US. There, the two-year bonds with a yield of just under 2.3% do not currently yield much less than the ten-year bonds, which yield 2.5%. And the yield on five-year US government bonds is already above this level, at 2.58%. If the trend of the so-called “reverse yield curve” – ​​that is, higher yields on shorter-term securities than on longer-term securities – stabilizes, this is considered a sign of impending recession.

Oil prices are also rising at the moment. On Friday, North Sea Brent crude rose more than 1 percent to more than $ 122 a barrel after a widespread Houthi rebel airstrike in Yemen against Saudi Arabia. According to an army spokesman, industrial facilities of the Aramco oil company were hit in the port city of Jeddah in the Red Sea.

“We are seeing unrest in Russia and Ukraine and now we are seeing it again with Saudi Arabia, and if we continue to see attacks in both of these areas, no one wants to bet on falling oil prices right now,” he said. Commodity issues Dennis Kissler of US stockbroker Bok Financial. “Supplies are limited.”

What will be important this week

Next week, investors will look mainly at financial data and inflation. So far, the world’s largest economy, the US, is in good health. Analysts predict the addition of another 450,000 non-agricultural jobs in March. A taste of the official data will be given by the data of the private American employment organization ADP on Wednesday.

The US Consumer Expenditure is scheduled to be published on Thursday. Experts expect an increase of 0.6% for February, after an increase of 2.1% last month. The consumer sentiment of American consumers is considered the pillar of the American economy. However, analysts expect the improving climate to weaken. Consumer confidence in the US will be published on Tuesday. A reduction is expected here.

The GfK index will provide information on the availability of domestic consumers on Tuesday. According to analysts, a decrease to minus 14 points from minus 8.1 points is expected.

A barometer for the consumer climate at European level will follow on Wednesday. Preliminary German inflation data for March and European inflation data for March will also be published on Wednesday. On average, economists forecast seven percent for Germany and 6.3% for Europe. For Europe, however, some market observers expect more: Commerzbank analyst Christoph Weil expects a record 7.7%. In his view, this increases the pressure on the ECB to launch a monetary policy shift.