Markets fear inflation more than war
The world's stockmarkets have dismissed Russia's invasion of Ukraine - preferring to concentrate on the perils of inflation.

“Investors who lived through the 1980s may be experiencing a sense of déjà vu – persistently high inflation and strained relations with Russia”, say Lauren Foster and Andrew Welsch in Barron’s. Yet the America’s S&P 500 is only marginally down since the Russian invasion last week. The FTSE 100 is off about 2%. Other European markets have been hit slightly harder, with Germany’s Dax down more than 5% since 23 February.
These fairly small moves may be because “history tells us that major geopolitical events will have almost no impact on markets after six to 12 months”, says Michael Rosen of Angeles Investments. “Looking at the past 70 years, markets have usually taken a few weeks from the start of a war to find a bottom,” says Stefan Kreuzkamp of DWS. “Once markets conclude that the (economic) situation is not going to deteriorate any further,” then asset prices start to rise again. That said, “a military conflict on this scale, in the backyard of the EU and involving a superpower, has not happened during the past 50 years” – so we don’t have much historical precedent to go on.
The Ukraine crisis “is not yet a markets crisis”, says Ethan Wu in the Financial Times. Assets “are priced for a medium-term disruption in certain sectors, but not yet a broader disaster”. The trouble is that the “tail risks” of the Ukraine war, such as the conflict spreading to other countries, are difficult to price. “In a year’s time, either this war will have changed little about markets, or changed everything.”
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
A headache for central banks
Investors have so far focused on the inflationary implications of the war. Supply chains are taking another battering, say Alistair MacDonald and William Boston in The Wall Street Journal. “The fighting has shut down car factories in Germany that rely on components made in Ukraine and hit supplies for the steel industry as far as Japan.” Airspace closures will raise air freight costs from Europe to Asia. Financial sanctions will complicate how seaborne trade is conducted. All of this generates inflationary pressure.
Spiking commodity prices increase the odds of “stagflation”, says Roger Bootle in The Daily Telegraph. Higher energy and commodity prices simultaneously inflate consumer prices, while depressing demand by eroding consumers’ disposable income. Potential parallels from economic history are the oil shocks of 1973-1974 and 1979-1980. The lesson of the 1970s is that central banks need to act promptly to stop inflation becoming permanently embedded in the economy. Yet raising interest rates would worsen the hit to economic demand. Things have just got “much more difficult” for the Bank of England and its peers.
The current market consensus is that central banks will continue to hike rates as planned, but may do so at a slightly slower pace. Traders previously thought the Federal Reserve and Bank of England would probably raise rates by 0.5 percentage points this month. However, current market pricing shows that they now think a 0.25 percentage point hike is more likely.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
-
Inheritance tax receipts surge by 10% – can you reduce your IHT liabilities?
Bereaved families are paying more than ever in inheritance tax, but there are some ways to reduce your bill.
By Laura Miller
-
Premium Bonds hotspots: The UK counties with the best chances of winning
Millions of people across the UK hold money in Premium Bonds, but are you more likely to win if you live in a certain part of the country?
By Daniel Hilton
-
Supersonic travel: How China could 'leapfrog' US and Europe's commercial aviation industry
Opinion Innovation in commercial aviation has been stuck for 60 years. A commercial supersonic jet might be back on the market soon, but will China get there first?
By Matthew Lynn
-
How British businesses can tackle Trump's tariffs
The majority of British businesses are likely to take a hit from the chaos caused by Trump’s tariffs to reorder global trade. Companies in the firing line face some difficult decisions, says David Prosser
By David Prosser
-
Trump wants to colonise Mars – will it happen?
Donald Trump wants to plant the US flag on Mars. Could humans really live there?
By Simon Wilson
-
Why are energy bills so expensive in the UK?
Electricity bills in the UK are higher than in any comparable rich country. Some blame the net-zero zealotry of the government for that. What is really to blame for high energy bills?
By Simon Wilson
-
Will Putin invade Europe? Why investors know Russia is a paper tiger
Opinion Markets are right to ignore talk of Putin invading Europe, says Max King.
By Max King
-
Why French far-right leader Marine Le Pen has been banned from running for office
Marine Le Pen, presidential candidate and leader of France's right-wing National Rally party, has been barred from standing by the country's judges.
By Emily Hohler
-
Five years on: what did Covid cost us?
We’re still counting the costs of the global coronavirus pandemic – and governments’ responses. What did we learn?
By Simon Wilson
-
Will Trump force the Fed to lower interest rates?
Opinion Markets are ignoring the risk that Donald Trump forces the central bank into reckless interest rate cuts
By Cris Sholto Heaton