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.
-
House prices are falling in London but how does it compare to the rest of the UK?
Advice The capital remains the most expensive part of the UK to buy a property, but it isn’t being as badly hit by the housing market slump. Where are London house prices heading?
By Marc Shoffman Published
-
Will a Santa Rally provide festive cheer for investors this year?
News Equities often get a seasonal boost during December - will there be a Santa Rally in 2023?
By Marc Shoffman Published
-
Can Lidiane Jones be Bumble's perfect match?
Dating app Bumble is taking on Lidiane Jones, a well-regarded leader in tech, as its new boss. Can she work her magic in a new arena?
By Jane Lewis Published
-
UK millennials are worse off than previous generations
The evidence shows that millennials today are getting a raw deal. And, ultimately, that's a political choice.
By Simon Wilson Published
-
The rise and fall of Sam Bankman-Fried – the “boy wonder of crypto”
Why the fate of Sam Bankman-Fried reminds us to be wary of digital tokens and unregulated financial intermediaries.
By Jane Lewis Published
-
The jury's out on the AI summit at Bletchley Park
World governments gathered for an AI summit at Bletchley Park in November, but were they too focused on threats at the expense of economic benefits?
By Simon Wilson Published
-
As a market correction begins, money is on the move.
The force of a market correction is equal and opposite to the delusion that preceded it, so we can imagine that the correction will also be unparalleled.
By Bill Bonner Published
-
How small businesses can retain staff in a competitive job market
Small businesses are struggling to retain staff and compete against large companies with deep pockets.
By David Prosser Published
-
The French economy's Macron bubble is bursting
Cheap debt and a luxury boom have flattered the French economy. That streak of luck is running out.
By Matthew Lynn Published
-
K-pop hitman Bang Si-hyuk aims to repeat BTS phenomenon
Bang Si-hyuk created the world’s biggest boy band, BTS, making K-pop music a global sensation and himself very rich. Can he repeat the trick with a girl band?
By Jane Lewis Published