Investors are bracing for further pressure on shares today as uncertainty generated by the Ukraine conflict feeds into existing worries about inflation and rising interest rates.
After twelve years of extraordinary monetary support for the global economy, central banks around the world are increasingly hamstrung by rising prices caused by a combination of increasing post-Covid demand and supply bottlenecks.
The need to lift interest rates and withdraw stimulus funds is weighing on asset prices and pushing analysts to downgrade company prospects, despite a potential economic boost from easing pandemic restrictions.
The conflict in Ukraine adds to the existing inflationary pressures, with sanctions on Russia likely to put a brake on European growth while increasing prices for key commodities.
Germany’s position as the largest European economy and its dependence on Russian gas add to fears of stagflation – rising prices amid a slowing economy. The German index fell another 3% overnight to touch its lowest point in a year.
Top Australian Brokers
Despite these obvious pressures, some investors are clinging to hopes that the outbreak of war will see central banks maintain lower rates for longer. Shorter-dated US bonds rallied overnight.
These conflicting views are causing sentiment and share prices to see-saw.
Energy stocks provide a rare bright spot in the near term as the potential for deep sanctions on Russian gas exports lifts oil and gas prices across the board. Brent crude oil, the main European contract, burst through the US$100 a barrel, to then trade almost 10% higher in the session.
Stocks and ETFs exposed to cryptocurrencies could also benefit as speculation grows that Russia will turn to blockchain currencies as its access to the global banking system is cut off.
Futures markets are pointing to opening falls greater than 1% for Asia Pacific indices. The Reserve Bank of Australia’s balanced statement yesterday, after keeping interest rates steady, may cushion local selling pressure.