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Tense time on financial markets as door is slammed shut on hopes of a Ukraine summit

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown comments on the latest attempts to avert conflict in Ukraine and the impacts on stock markets: 

‘’Investors are increasingly tense as hopes of significant talks aimed at solving the crisis evaporate and the first sanctions have thrown been thrown into Russia’s path with threats of more to come. The volatility which has hit stocks is set to remain as traders assess this latest attempt to slow down the march towards a full invasion of Ukraine. President Biden may say he hopes that a diplomatic solution will be found, but it’s the equivalent of shouting through the letter box given the summit door has been slammed shut. Oil prices are still hovering near seven year highs and with the NordStream 2 pipeline plans halted, gas prices are likely to stay highly elevated with fewer supplies set to come through and could rise sharply if aggression intensifies. Germany is among the European countries highly reliant on Russian supplies, and lacks infrastructure to immediately wean itself off dependence. The conundrum of trying to hit Russia hard with sanctions which could ricochet back and harm Western economies isn’t going to go away any time soon. Russia has built up hefty foreign exchange reserves, totalling almost $640 billion in its central bank, which will help insulate the country from economic shocks.

Central Banks will be navigating these conflicting tides as they decide how fast and how steeply rates should be raised to try and cool down hot consumer prices. With higher oil and gas prices such inflationary drivers, the turn of events is unlikely to deter them from the immediate policy signalled of fresh hikes. However if fuel soars further and starts to hurt businesses and the wider economy, policymakers may be tempted to soften their approach later this year. If a full blown conflict breaks out, there is also likely to be significant disruption to ship movements around the Black Sea. This could lead fuel higher food inflation given that Ukraine, Russia, Kazakhstan and Romania all ship grain from ports in the area. The extra pounds on bills are piling up for families, with the increase in fuel, energy and grocery bills set to hit lower income households harder. With budgets being squeezed further the likely knock on effect of a fresh rise in prices, caused by the escalating situation in Ukraine, would be a blow to consumer confidence, after lockdown savings are increasingly worn away.

For investors it’s worth remembering that in times of increased nervousness, it’s even more crucial to have a diversified portfolio. There are already signs of bargain hunting among traders, keen to snap up shares sensitive to the situation but concentrating efforts on ensuring holdings represent a basket of different assets across varied geographies is likely to provide more resilience.’’

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown

‘’Investors are increasingly tense as hopes of significant talks aimed at solving the crisis evaporate and the first sanctions have thrown been thrown into Russia’s path with threats of more to come. The volatility which has hit stocks is set to remain as traders assess this latest attempt to slow down the march towards a full invasion of Ukraine. President Biden may say he hopes that a diplomatic solution will be found, but it’s the equivalent of shouting through the letter box given the summit door has been slammed shut. Oil prices are still hovering near seven year highs and with the NordStream 2 pipeline plans halted, gas prices are likely to stay highly elevated with fewer supplies set to come through and could rise sharply if aggression intensifies. Germany is among the European countries highly reliant on Russian supplies, and lacks infrastructure to immediately wean itself off dependence. The conundrum of trying to hit Russia hard with sanctions which could ricochet back and harm Western economies isn’t going to go away any time soon. Russia has built up hefty foreign exchange reserves, totalling almost $640 billion in its central bank, which will help insulate the country from economic shocks.

Central Banks will be navigating these conflicting tides as they decide how fast and how steeply rates should be raised to try and cool down hot consumer prices. With higher oil and gas prices such inflationary drivers, the turn of events is unlikely to deter them from the immediate policy signalled of fresh hikes. However if fuel soars further and starts to hurt businesses and the wider economy, policymakers may be tempted to soften their approach later this year. If a full blown conflict breaks out, there is also likely to be significant disruption to ship movements around the Black Sea. This could lead fuel higher food inflation given that Ukraine, Russia, Kazakhstan and Romania all ship grain from ports in the area. The extra pounds on bills are piling up for families, with the increase in fuel, energy and grocery bills set to hit lower income households harder. With budgets being squeezed further the likely knock on effect of a fresh rise in prices, caused by the escalating situation in Ukraine, would be a blow to consumer confidence, after lockdown savings are increasingly worn away.

For investors it’s worth remembering that in times of increased nervousness, it’s even more crucial to have a diversified portfolio. There are already signs of bargain hunting among traders, keen to snap up shares sensitive to the situation but concentrating efforts on ensuring holdings represent a basket of different assets across varied geographies is likely to provide more resilience.’’

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