September 30, 2022

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Europe at War: Six Charts to Know in Financial Markets

Europe at War: Six Charts to Know in Financial Markets

Ukrainian soldiers and responders stand next to a destroyed vehicle, at the site of combat with Russian forces, after Russia launched a large-scale military operation against Ukraine, in Kiev, Ukraine, February 26, 2022. REUTERS/Valentin Ogirenko

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LONDON (Reuters) – Russia launched a full-scale invasion of Ukraine this week, triggering a series of sanctions and turmoil in global financial markets.

Here are six charts showing the week’s dramatic moves in financial markets:

energy boost

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Fears of a possible supply disruption to oil markets from the war in Ukraine sent crude oil prices above $100 a barrel for the first time since 2014, with Brent touching $105. Gas prices in the UK and the Netherlands rose about 40%-50% on Thursday. Crude oil and gas prices fell on Friday, and markets remain nervous.

While a host of harsh sanctions imposed by Western capitals have not specifically targeted Russia’s oil and gas flows, major buyers of Russian oil are struggling to secure collateral in Western banks or find ships to take crude out of the country. Read more

Russia is the world’s second largest producer of crude oil and provides about 35% of natural gas supply in Europe and 50% of natural gas supply in Germany.

Oil and gas prices rose

Inflation fears

Rising energy prices have triggered a rush in inflation-linked bonds – securities whose payments are rising in line with inflation.

This has caused real yields – post-inflation-adjusting borrowing costs – to fall sharply, while so-called breakevens, which indicate where markets see inflation in the future, have risen sharply.

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Essentially, it refers to the belief that central banks may have to move more slowly than previously anticipated as interest rates rise to fight inflation as economic growth is also taking a hit.

Interest rate-sensitive Treasury Inflation Protected (TIPS) yields slipped while interest rates rose to 3% last week. In Germany, exposed to rising European gas prices, two-year real yields fell by about 30 basis points and interest rates rose to 3.7% TIPS funds received net inflows for the first time in five weeks, according to Bank of America data.

breakevens

Stock Markets: Beware of the Bear

Thursday’s market rout wiped out nearly $1 trillion from the value of the global stock market and accelerated the decline in major indexes that has occurred this year as investors begin to worry about major interest rate increases by the central bank.

The American high-tech Nasdaq stock exchange (nineteenth) It is flirting with “bear” market territory, where it is known to be down 20% from the recent peak, but US markets closed higher despite all the damage elsewhere and were gaining more ground on Friday.

Europe down 3.3% for the STOXX 600 (.stoxx) It took its last reversal over 10%, but then bounced back just as much on Friday.

MSCI Emerging Markets Index for 24 Countries (MSCIEF) Meanwhile, the “bear” market ticked off as its 4.3% drop on Thursday sent it down just over 20% from a record low almost a year ago.

Indications

Russian road

The Russian stock market was expected to be hit hard on Thursday. The Moscow Stock Exchange MOEX fell 33% (.IMOEX) Having fallen more than 1,000 pips in one stage as traders prepare for severe penalties. Russia’s MSCI index collapsed 38%. Analysts estimate it was one of the three biggest stock market crashes ever.

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The Russian stock market has deteriorated much more than during other crises

Ukraine drain

Ukraine was hit with the same amount of blows. Its currency and government bonds collapsed violently, as investors questioned whether the country would be able to avoid another sovereign default.

The price of war

Wheat and sweet grains

Wheat prices hit their highest levels since mid-2008 as markets tried to gauge the consequences on supplies of grain and oilseeds from the conflict between Russia and Ukraine – two of the world’s largest exporters. Read more

Supply disruptions from the Black Sea region will put pressure on prices and increase food price inflation at a time when affordability is a major concern worldwide after the economic damage caused by the COVID-19 pandemic.

Ukraine’s military on Thursday suspended commercial shipping at its ports after Russian forces invaded the country. Russia earlier ordered the Sea of ‚Äč‚ÄčAzov to be closed to commercial vessel traffic until further notice, but kept Russian ports in the Black Sea open to navigation. Read more

Ukraine crisis caused wheat prices to rise
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Additional reporting by Karen Stroecker, Sujata Rao, Mark Jones and Sayakat Chatterjee; Editing by Hugh Lawson

Our criteria: Thomson Reuters Trust Principles.