RUSSIA STEPS UP ASSAULT ON UKRAINE AS GLOBAL MARKETS TRY TO ASSESS THE IMPACT

RUSSIA STEPS UP ASSAULT ON UKRAINE AS GLOBAL MARKETS TRY TO ASSESS THE IMPACT

This week the ongoing invasion of Ukraine by Russia unsurprisingly still dominates. Optimism caused by the initial failure to capture the country quickly has given way to the fear that Russia still plans on capturing it, but slowly, and with wholesale destruction of cities with artillery and huge civilian casualties – a tactic used in previous wars in Chechnya and Syria. While sanctions and other non-military penalties are being applied, with differing degrees of conviction, there is little that can be done in the short term and the direction the conflict might take is extremely uncertain.

Elsewhere while the fighting might be restricted to Ukraine, the fallout is not. As Russia rapidly becomes cut off from the global economy, both financially and physically, the disruption to the global economy is just beginning, starting with commodity markets. With inflation already high from supply chain disruption, it was significant that the Chair of the US Federal Reserve reiterated his commitment to tackle rising prices. While not comparable to the suffering being felt by Ukrainians, the economic pain will not be contained in the region either.

GLOBAL: INVESTORS SHUN RISK ASSETS AS RUSSIAN INVASION INTENSIFIES

As the fighting continues in Ukraine financial markets have taken a defensive approach. Global equities have fallen, with UK and European shares seeing some of the biggest drops among developed markets. US equities have also fallen with the technology heavy Nasdaq index falling more than the broader S&P 500 index. Investors sought the safety of government bonds early in the week pushing prices up and yields down. They reversed slightly later in the week as US Federal Reserve Chair Jerome Powell indicated the US central bank is likely to raise rates at this month’s interest rate meeting.

Gold, another target of investors seeking safety, saw some gains this week but the biggest increase is in the wider commodity markets. Energy and soft commodities such as corn and oats have risen, while wheat is up around 60% as Ukraine and Russia are two of the largest exporters. Industrial metals have also risen and palladium, a key component in catalytic converters in car exhausts, is up 20% due to disruption of Russian exports.

OIL: UKRAINE INVASION SENDS OIL AND GAS PRICES UP STEEPLY

Global commodity prices surged as the invasion of Ukraine continued. The international oil benchmark Brent crude surpassed $100 per barrel and hit a peak of $114, the highest level since 2014. Natural gas also jumped with UK wholesale prices rising 20%. Oil and gas prices have largely been driven by concerns about the security of future supplies. Although oil and gas are excluded from current sanctions, prices have also been driven up by numerous companies voluntarily refusing to import oil from Russia as a result of the invasion.

Earlier in the week the International Energy Agency agreed to supply 60 million barrels of oil from its emergency stockpile to help subdue prices, but this had a little impact. The increase oil and gas prices added to concerns of further inflation, however, when compared to the extent of energy price increases seen over the past 18 months the recent increases will have a far smaller effect.

EQUITIES: RUSSIAN EQUITIES SHUNNED AS SANCTIONS TAKE EFFECT

The Moscow stock exchange stayed closed this week as officials try to prevent last week’s crash extending. With trading suspended and demand from overseas investors non-existent MSCI and FTSE Russell are removing Russian companies from their global indices. Russian companies with their primary listing in London have also seen their shares plummet. Mining Stocks Evraz and Polymetal are dropping out of the FTSE 100 at this month’s quarterly rebalance and Petropavlovsk will leave the FTSE 250 after their shares fell around 90% in 2022.

Western companies have moved quickly to sever ties with Russia. Oil companies BP, Shell and ExxonMobil are exiting joint ventures and global shipping firms Maersk, UPS and FedEx are refusing to handle non-essential cargo. Disney, Apple, Nike, Volkswagen and Toyota are among the companies which have suspended operations as they view the reputational cost of staying in Russia as far higher than the lost earnings.