The week was marked by Moscow’s decision to launch a “special operation” to invade Ukraine, which had an impact on the still-limited global stock market, with a 0.6% drop in the global index of financial advisory firm MSCI.
After consecutive daily declines, accumulating a loss of 3%, markets responded higher on Friday, with the global index rising 2.4%, largely offsetting the shock of the return of war on the borders of Eastern Europe. The CRB Global Commodity Futures Price Index, provided by Refinitiv, rose just 0.3% during the week. The global shock still continues in the churchyard.
According to analysts, investors are also assessing the extent to which the new expansion of the Kremlin on its western borders (after the 2008 operations in Georgia and the 2014 annexation of Crimea) could lead to a global shock to financial markets due to the course of occupation of Ukraine and the impact of economic and financial sanctions imposed mainly from Before the United States and the European Union. The balance of effects for this first week is uneven.
The shock to the financial markets centered on the collapse of the stock exchanges of Kiev (41%), in the occupied country, and Moscow (33%), in the aggressor country, and dragged the neighboring squares to Kazakhstan (22%), and Slovenia. (15th%). Hungary (13%), Vienna (11%) and Warsaw (11%). In Moscow, seven of the largest listed companies with more than 40% collapsed, including banks subject to US sanctions and Brussels, state-owned VTB and Sberbank (60% owned by the Central Bank of Russia), and the oil company Rosneft (which is not yet sanctioned). ), real estate group PIK, Internet and social media companies VK and Yandex (also listed on Nasdaq, where it sank 59%), and gold mining group Petropavlovsk (also listed in London, where it lost 41%).
Meanwhile, the former heads of European politicians who held leadership positions in the Russian groups, and who resigned following the invasion, have turned into presidents: former prime ministers, Matteo Renzi, of Italy, Esco Aho of Finland, François Fillon of France, and Christian Kern. from Austria. Most notable is the case of former German Chancellor Gerhard Schroeder, who criticized the invasion, but did not resign as head of Rosneft and the management of Gazprom.
Side effects in Asia and Europe
The second episode of negative impact included Turkey (the BIST 100 index fell by 4% during the week) and the Asia region as a whole, with notable declines in the global financial market of Hong Kong (the Hang Seng index fell by more than 6% during the week) and in the stock exchanges of India and Pakistan. In the Asian region as a whole, the MSCI index in question lost 3.8% during the week, twice the decline in European stock exchanges as a whole (2%).
The Eurostoxx 50 index – of the 50 major companies listed in the eurozone – fell 2.5%. Two of the European listed companies with the most exposure to Russia, the Dutch Prosus (which has invested in Russia’s VK and is the international division of the internet assets of the South African multinational Naspers) and Germany’s BASF lost more than 10%. In Lisbon, the PSI 20 is down 2% for the week, in line with the European Community.
Stocks in New York are still relatively far from the shock wave, staying above the water line, with an overall gain of 0.9% for the week. Nasdaq tech emerged with a 1% rise, but the Dow Jones Index, among the top thirty listed companies worldwide, fell slightly.
History says the influence of geopolitics is not linear
The return of war to Europe’s borders does not have a linear effect on financial markets. The most studied case covers the stage immediately before World War II and its development, especially after Hitler initiated the German expansion plan. The process began with the annexation of Austria in March 1938 and then with the invasion of part of Poland in September 1939. During this period, the Dow Jones in New York still recorded gains in 1938 (28%) and only began to collapse in 1939 (down 2.9%), While in Frankfurt, the DAX Composite Index (started in 1933) entered a bull run in 1939, in what became known as German stock market euphoria around blitzkrieg Nazi, and discontinued only in 1941, registering a cumulative increase of 60%. Then it stagnated, especially after the Nazi defeat at the Battle of Stalingrad, until the stock exchange closed in August 1944. Hitler committed suicide only in April 1945.
In New York, the Dow began posting huge losses only in 1940 (a 13% drop) and 1941 (a 15% loss) until it hit rock bottom in May 1942, beginning an upward cycle after the victory of the North. Midway against the Japanese in the Pacific. In London, the index lost 37% between the second quarter of 1937 (when the Japanese advanced with the global invasion of China as England had relevant economic and financial outposts, namely Shanghai) and the third quarter of 1940, after the RAF claimed superiority over German raids on England. The ascent cycle began in London in the late 1940s and continued until 1961.
Raw materials shock exacerbates inflation risks
Although the rise in the global CRB index was modest during the week, some raw materials recorded price increases of more than 3% in just five sessions: gasoline and diesel, and in agricultural products, wheat and rice. Russia and Ukraine produce 30% of the world’s wheat production.
The tension in the energy market was particularly reflected in the rise in the price of a barrel of Brent crude, a European standard, Up to a peak of $105.8 on the day of the invasion, the highest level in eight years, after it closed at $ 94.5, up 1% from the previous week’s close. Investors have now turned their attention to the March 2 OPEC meeting and the broader group, called OPEC+, which includes Russia.
Raw materials have already increased 14% since the beginning of the year, after a 39% increase last year. At the same time, analysts stress that shipping rates will rise again and that disruptions in global supply chains will continue, now exacerbated by problems with natural gas and some agricultural products.
The impact on production and consumer price inflation will continue, putting pressure on central banks to continue tightening monetary policy in a context where a new war in Europe threatens to derail economic recovery from the 2020 crisis. 2021 rose to 4.4%, more than 1 percentage point above the previous year. Analysts’ forecasts focus on the macroeconomic outlook coming from the European Central Bank (ECB), on March 10, and from the US Federal Reserve, six days later. The International Monetary Fund (IMF) presents new forecasts at its general meeting between April 18-24.
However, there are a number of other central bank meetings in March that will be scrutinized by investors: the Reserve Bank of Australia on the first, Canada on the second, the Bank of England on the 17th, and the Bank of Japan and Russia on the 18th.
The interest on public debt continues to rise
The public debt market took a turn for the worse this week, starting with the main parties involved in the war.
In Russia, short-term rates escalated, being higher than medium and long-term rates. In 6 months, interest rates rose to nearly 18%, while in the 10-year benchmark they rose from 9.75% in the week before the invasion to 12.1% at Friday’s close. Forecasts point to 19% in December. In Ukraine, the 12-month rate doubled in five sessions: from 13% to 29%.
Bankruptcy Insurance – Technically called credit default swap – It rose in Russia by 100 basis points (1 percentage point) between Monday and Friday, the highest in the world after Turkey.
Ukraine operates on the basis of authorized financial assistance from the International Monetary Fund amounting to 5.3 billion US dollars (4.7 billion euros), of which 2 billion US dollars (1.8 billion euros) remains to be disbursed. billion euros). This week, the Ukrainian president requested emergency assistance from the fund, and Kristalina Georgieva, head of the Bulgarian International Monetary Fund, promised “to support Ukraine by all possible means.” Kiev has nearly $11 billion (about 10 billion euros) in repayment to the International Monetary Fund by 2026. Ukraine’s central bank has a meeting scheduled for March 3.
The eurozone, which is protected by the umbrella of the European Central Bank, posted slight price increases. In the case of Portuguese 10-year Treasuries, interest rates rose from 1.09% on February 18 to 1.1% by the end of Friday. In the case of German bonds, which are used as a benchmark, the rise was from 0.2% to 0.22% in the same period. However, since the end of January, the diffusion (The differential) between Portuguese and German long-term debt rose from 61 to 88 basis points (from just over six-tenths to about nine-tenths). Spain still charges fees and margins outperforms the Portuguese. Eastern economies, outside the Eurozone, record interest rates between 3% (Czech) and 5.9% (Romania).
Russian assets account for 90% of GDP
To counteract the effects of the invasion of Ukraine and sanctions on the Russian economy, Moscow has $630 billion (558 billion euros, as of January 31) in foreign exchange and gold reserves. They have increased by about $40 billion (over €35 billion) in the past 12 months, he confirms pass Daniel Triesman is an expert on Russian economics and a professor at the University of California, Los Angeles
The author of “The New Autocracy” and director of the Russia Political Insight project also mentioned other reserves, such as the Russian sovereign fund, which owns $185 billion (164 billion euros) and central bank assets, valued at roughly the United States. 647 billion dollars (574 billion euros). Brussels recognizes the freezing of transfers of the Russian Central Bank.
Altogether, the sum of these assets is close to $1.5 billion, 91% of Russia’s GDP last year.
The Russian Central Bank, which made seven major interest rate increases in 2021, has yet to decide on any monetary policy changes in 2022. The key rate is 8.5%, after rising 4.25 percentage points last year. The bank meets on March 18th.
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