Since entering Ukraine in what Moscow calls its "special military operation," over six months have passed with tremendous East-West tensions since the Cold War. It has also caused significant instability to the world’s financial markets.
1. Recession Fears
As gas prices—critical for homes and industry—have more than tripled since June alone on worries that Russia may shut off its supplies, possibly resulting in energy rationing in some nations, recessions in Europe now seem all but guaranteed. However, raising interest rates will burden households and businesses already feeling the pinch from rising costs. The European Central Bank, the Bank of England, and other central banks are committed to halting the spiraling inflation that energy costs fuel.
2. Growing Pains
After the invasion, agricultural markets were volatile, but they have subsequently shown to be extraordinarily adaptable. Russia and Ukraine's two main exports, wheat, and corn, have dropped in price sharply after initially rising, and oil, Moscow's primary source of income, is now fetching lower prices than before the invasion.
3. Inflation Palpitations
Inflation rates worldwide have reached levels last seen in the 1970s due to the rise in energy and food prices and the constraints placed on the supply chain due to the epidemic. As a result, the bond market has been affected significantly, particularly where borrowing costs have skyrocketed and default concerns have grown.
4. Euro Trashed
The euro has fallen more than 12% this year, worse than any comparable period since its launch in 1999. This fall reflects the belief that further reductions in Russian gas supplies will hit major eurozone economies that depend on it, such as Germany and Italy, particularly hard.
5. Out of Gas
Since the beginning of the year, Russian gas shipments through significant pipelines to Europe have decreased by over 75%, prompting prominent European politicians to claim that Moscow is armed with its resources.
Although Russia has denied planning the cuts, the reality is that they are taking place, and the fact that the EU depended on Russia for 40% of its gas before the invasion has driven up the price to 270 euros/MWh from less than 50 euros/MWh at this time last year.
6. Underperformers
Due to their reliance on Russia, the stock markets of Germany and Italy had some of the poorest performances worldwide. Poland and Hungary, two countries close to the war, also saw severe losses in their stock markets and currencies. Bonds of nations with high gas or wheat import costs also suffered.
7. Chemicals and Car Parts
Since natural gas is essential to their production process, shares of chemical companies have seen some of the greatest drops since the invasion.
The production of auto parts has also been severely impacted, partly because Russia served as a significant market for companies like VW and Mercedes and in the region because Ukraine and Russia served as suppliers.
European chemical companies have endured a difficult period. Production halts and speculations about future gas rationing have recently harmed their stock prices.
8. Volatile Times
Following the invasion on February 24, market volatility indices for everything from equities and bonds to oil and the euro-dollar exchange rate spiked before crashing. However, they increased this month as concerns about the economy and the energy market increased.
9. Falling Ratings
Since late February, roughly 250 S&P Global credit rating downgrades or outlook reductions have cited the war as a contributing cause. Over half of them came from Russian borrowers, but as energy and borrowing costs rise, the effect will continue to be widely felt due to the war's destruction of its economy and finances. Additionally, sanctions caused Russia to experience its first sovereign debt default in many years and resulted in an outstanding balance of more than $25 billion in corporate debt.
Jeff Grills of Aegon Asset Management remarked, "Russian corporates have demonstrated a firm willingness to keep paying foreign creditors, even with the restrictions that sanctions have imposed upon them.
10. Corporate Exodus
According to a list produced by Yale academics, over 1,000 multinational companies have either left Russia or declared public plans to reduce their activities there, including well-known names like Nike, Coca-Cola, IKEA, and Apple, where the assets are valued in billions. However, others have either remained in Russia or kept what were crucial or unsellable portions of their firms.
Edited by: Ayona Mitra
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