With the invasion of Ukraine by Russia now into its second week, stock markets continue to battle the threat of even higher inflation and a potential economic slowdown.
Russ Mould, investment director at AJ Bell said: “Since the invasion began on 24 February, Germany’s DAX index has fallen by 8.3%, Hong Kong’s Hang Seng index has dropped by 7.4%, and the FTSE 100 is down 5%. The exception is the US Nasdaq which has surprisingly risen by 3.8% over that period.
“Soaring commodity prices imply the cost of living is going up again, and it affects people around the world.
“Daily meals are getting more expensive. Wheat prices have hit a 14 year high which means the key ingredient for bread and pasta is getting more costly – that even affects the price of meat as wheat is used in animal feed.
“Aluminium prices are rising, so tin cans will go up in price. Oil is bubbling around $111 per barrel, so you can be certain the petrol needed to drive the car to work is getting more expensive.
“Rare earth material supplies from Russia are under pressure, and they’re needed to make electronics devices. Even copper is going up in value and that’s used so widely.
“Disruptions to trade and supplies creates another headache for businesses and one reason why share prices have been falling in the past week or so is the market pricing in lower earnings.
“If costs are going up again, corporates must either stomach lower profit margins or risk passing on the costs to the end user. At some point soon consumers will not be able to cope with even higher prices, so corporates face a big demand test.
“Just look at which companies have been weak on the UK stock market in recent days. For example, marketing agency WPP has been in decline since the invasion started as investors will no doubt be worried about a decline in advertising activity if economic growth slows. Many companies won’t want to spend money on promotions in the current environment if everyone is glued to the news rather than out shopping.
“British Airways owner International Consolidated Airlines has also been falling. Rising oil price means higher fuel costs, and higher inflation could mean weaker demand from consumers who are now watching their wallets more closely.
“While the stock market declines in Europe and Asia are still a long way off the movements we saw in February and March 2020 when the pandemic first struck, the Ukraine crisis is still very serious as there could be severe knock-on effects felt around the world.”
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