LONDON, Aug 24 (Reuters) – More than six months since Russia invaded Ukraine, Moscow has declared its “military special operation” that has left thousands dead, millions homeless and the world at its worst East-West tensions since experienced the Cold War.
As shown in the chart below, this has caused severe volatility in global financial markets.
1/ Fear of a recession
A recession in Europe now seems almost certain as gas prices, which are crucial to households and industry, have more than tripled since June alone on fears Russia will cut supplies, potentially leading to energy rationing in some economies. .
Still, the European Central Bank, Bank of England and other central banks are determined to contain inflation as energy costs rise, even as higher interest rates will continue to weigh on households and businesses grappling with rising costs.
Agricultural markets boomed after the invasion but have since proven remarkably resilient. Wheat and corn – Ukraine’s and Russia’s top exports – have plummeted again after an initial surge in prices, while Moscow’s main source of income, oil, is now getting less than it did when the invasion began.
3/ Inflation blows
Soaring energy and food prices combined with post-pandemic supply chain stresses have pushed inflation rates around the world to levels last seen in the 1970s. This has had a massive impact on bond markets, particularly where borrowing costs have risen and concerns about defaults have increased.
The euro has fallen more than 12% so far this year, more than in any comparable period in the years since its inception in 1999, reflecting the prospect that further cuts in Russian gas supplies will hit the major eurozone economies particularly hard . those who depend on it, like Germany and Italy.
Russian gas flow through major pipelines to Europe has fallen by almost 75% since the beginning of the year, prompting European leaders to claim that Moscow is weaponizing its natural resources.
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Russia denies that the cuts are planned ahead of time, but the fact is that they are happening and the EU relied on Russia for 40% of its gas before the invasion, which cost them €50/MWh this time last year. 270 euros/MW. ,
6 / underperformers
Germany’s and Italy’s dependence on Russia made their stock markets some of the weakest in the world. Those closest to the fight, including Poland and Hungary, also saw their stocks and currencies fall. Bonds in countries with high gas or wheat import bills also suffered.
7/Chemical and auto parts
Chemical company stocks have suffered some of their biggest losses since the invasion as natural gas plays a key role in their manufacturing process. Auto parts makers were also hit hard, partly because Russia was an important market for companies like VW and Mercedes, and partly because Ukraine and Russia were also suppliers.
“European chemical companies have had a somewhat difficult time,” said Mirabaud equity analyst William Mylham. “Production has stalled and discussions about possible gas rationing have weighed heavily on their share prices lately.”
Volatility indicators for markets ranging from stocks and bonds to oil and the euro-dollar exchange rate rose after a bumpy ride since the Feb. 24 attack. But they are back up this month as energy and recession worries resurface.
Since late February, the war has been cited as a factor in nearly 250 S&P Global credit rating downgrades or outlook cuts. Russian borrowers make up more than half of them, but rising energy and borrowing costs mean the impact will continue to be widespread.
Ukraine made a mistake because the war ruined its economy and finances. The sanctions have pushed Russia into its first sovereign debt default in decades, leaving more than $25 billion of the country’s corporate debt unpaid.
Aegon Asset Management’s Jeff Grylls said: “Russian companies have shown a very strong willingness to pay foreign creditors, despite the restrictions imposed on them.”
According to a list compiled by Yale researchers, major brands from Nike and Coca-Cola to IKEA and Apple are among the more than 1,000 global companies that have either left Russia or made public plans to scale back their operations. are.
This adds up to billions of dollars in assets. But others have either made or retained what they described as essential or marketable parts of their business in Russia.
“We’ve never seen anything on this scale in economic history,” said Jeffrey Sonnenfeld, senior associate dean for leadership studies at Yale, who led the project.
(Additional reporting by Noah Browning and Nina Chestney in London, Danilo Masoni in Milan and Nerijus Adomatis in Oslo Editing by Tomas Janowski)