Fear of the effect of the war in Ukraine puts the stock markets in “trading mode”


Russia’s invasion of Ukraine has put the markets in check. Something that at the beginning of 2022 looked like a remote possibility turned two weeks old. All the operators who considered the warnings as alarmism had no way to prepare and now react in short time.

In this period of conflict, volatility has increased significantly in the stock markets. The currency market has seen a strengthening of the dollar as a refuge, oil reached levels not seen since 2008 and other raw materials are also rising. The reactions are on various fronts.

On Thursday, the latest data on US inflation was released, marking the highest year-on-year level in 40 years. Faced with the imminent rise in interest rates by the Federal Reserve, the nervousness of those who have a minimum task of overcoming the pressure on consumer prices is not a little nervous.

One eye to war and the other to oil

Oil prices rose from less than $100 to more than $130 a barrel as markets anticipated a possible shortage, as Russia is one of the main exporting countries. Although it has fallen, analysts have even raised a price of more than 200 dollars.

Although the announcement by US President Joe Biden on the ban on Russian oil imports raised hopes that Moscow would desist from its attack, the Russian and Ukrainian foreign ministers made no progress in their negotiations. The price is currently over $110.

For Daniel Cawrey, Director of Strategy at the Fintech company Passfolio, the point at which oil prices can reach is unpredictable for now, because this war continues and demand is increasing as the world emerges from the pandemic. something that will reactivate travel and mobility.

“If energy prices go up it will make everything more expensive, while wages will stay the same, which means people will have to spend more of their income than they want to,” Cawrey said. This also happens to companies and could be reflected in their actions.

In the event that the pressure on prices continues, something that Biden admitted could happen by vetoing Russian crude, the Fed’s decisions will be of great importance for investors, because although raising rates usually causes stock markets to fall, the current inflationary context is very particular.

Misperceptions and “short-termism”

In 2008, the price of oil crossed the $100-a-barrel line for the first time as rapid growth pushed demand well above supply’s ability to respond. The price reached almost 150 dollars and with this and more reasons the markets collapsed in a great crisis.

That crude oil recently hit a level not seen since 2008 also brought similarities to the stock market. Some of the behavior seen this time around could be described as at least similar, with energy and mining stocks up, and travel down.

However, the idea of ​​imitating what happened in the past can be problematic if we consider that on many occasions the fear of some and the greed of others take prices away from their real context, creating opportunities in the first case and some bubbles. very risky in the second.

This says Leonardo Pellandini, researcher for Equity Strategy at Swiss private bank Julius Baer. This expert recalls that before the war, materials were one of the main beneficiaries of the reactivation, after their lows due to the pandemic and encouraged by inflation.

“We see downside potential in major metal prices from current levels, keeping potential sector performance capped. The same in oil and gas companies. Recently, profits have become decoupled from oil prices,” Pellandini warned.

On this, Daniel Cawrey said that the volatility and the sharp falls in the stock markets (the S&P 500 index is down more than 9% in 2022) make traders nervous, who are looking for short-term solutions. This type of operation, linked to the news, brings its activity closer to speculation.

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