Conflict in Ukraine fuels inflation fears

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Investors brace for further pressure on equities today as uncertainty generated by the conflict in Ukraine fuels existing concerns about inflation and rising interest rates.

After twelve years of extraordinary monetary support to the global economy, central banks around the world are increasingly crippled by rising prices caused by a combination of growing demand and supply bottlenecks post- Covid.

The need to raise interest rates and withdraw stimulus funds is weighing on asset prices and prompting analysts to downgrade the outlook for businesses, despite a potential economic boost from the easing of restrictions in the event. of pandemic.

The conflict in Ukraine adds to existing inflationary pressures, with sanctions against Russia likely to dampen European growth while raising the prices of key commodities.

Germany’s position as Europe’s largest economy and its reliance on Russian gas add to fears of stagflation – rising prices amid an economic downturn. The German index fell another 3% overnight to hit its lowest point in a year.

Despite these obvious pressures, some investors cling to hopes that the outbreak of war will see central banks keep rates low for longer. Short-term US bonds rallied overnight.

These conflicting views are swinging sentiment and stock prices.

Energy stocks offer a rare near-term bright spot as the potential for tough sanctions on Russian gas exports drives up oil and gas prices across the board. Brent crude oil, Europe’s main contract, broke above US$100 a barrel, only to trade almost 10% higher during the session.

Stocks and ETFs exposed to cryptocurrencies could also benefit as speculation grows that Russia will turn to blockchain currencies as its access to the global banking system is cut off.

Futures markets are pointing to opening declines greater than 1% for the Asia-Pacific indices. The Reserve Bank of Australia’s balanced statement yesterday, after keeping interest rates steady, may dampen local selling pressure.

Market overview and analysis by Michael McCarthy, Chief Strategy Officer at Tiger Brokers Australia

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