How are the markets after six months of war in Ukraine

When Russian President Vladimir Putin launched his invasion of Ukraine in late February, investors were as shocked as the rest of the world. They rushed to digest the fallout, as the war disrupted supply chains and unleashed unprecedented Western sanctions, straining a global economy already under pressure.

Six months of conflict, uncertainty still dominates. The war continues to fuel global inflation, putting pressure on policymakers to raise borrowing costs, and global companies must deal with the continuing fallout. Ukraine’s headlines, traders say, are impossible to ignore.

“It’s still a big factor,” David Coombs, head of multi-asset investment at Rathbones, told me. “It’s very relevant at the moment and unfortunately it’s very difficult to see that changing.”

US equities are just 2.3% lower than at the end of February. But the gloomy mood continues to influence investment decisions. What happens next in the conflict could also influence the Fed’s next steps, which remain a key determinant of the market’s trajectory.

Shares in European companies, more directly exposed to the war and the energy crisis it provoked, are down nearly 5%. They face a much darker outlook.

If the war ended, Coombs said shares in European companies such as Germany’s Siemens could experience a major rally. But he expressed little optimism on that front.

“There is no end in sight. There is no obvious union of the two countries,” he said. “Right now, you are considering that this war continues until 2023.”

The long arm of the conflict isn’t just hanging over the global stock market.

Agricultural products

The cost of wheat fell sharply after hitting an all-time high in March, with investors applauding a deal brokered by the United Nations and Turkey to restart grain exports from major Ukrainian ports.

But Tracey Allen, agricultural commodities strategist at JPMorgan Chase, said difficult logistics continued to limit shipments from Ukraine, and extreme weather could push prices up again in the coming months.

“The market really needs the grain volumes coming from Ukraine, but it doesn’t look like we will have any normalization in the export flow without a ceasefire,” she told me.

Global oil prices hit $139 a barrel in early March, but fell on growing fears of a recession that could affect demand for fuel. They have lost about 18% since the beginning of June.

However, natural gas prices are rising as Russia toys with supplying Europe through key pipelines and heat waves increase electricity use. They hit a record in Europe this week and a 14-year high in the United States. The industry is taking a hit and consumers face a desperate winter.

Coins

The euro hit a two-decade low this week on fears that a Europe without energy could slide into a tough recession. Last month, it hit parity with the rising US dollar for the first time since 2002.

The strong dollar, which gains ground when investors are stressed and want to park their money somewhere safe, could put emerging markets that pay for imports in dollars at risk. It could also affect more developed economies.

“A sustained recovery in most [principais] currencies against the dollar seems unlikely to us at this stage,” ING strategists said in a note this week.