How is the Russia-Ukraine war affecting the West’s capital markets? The short answer is that the military conflict is having a profound impact on all aspects of life in Europe and elsewhere, and it’s hitting the financial environment on a global level.
Besides a few of the obvious results, like a significant leap in market volatility since the war’s onset, hundreds of corporations are leaving Russia for more friendly environs.
Plus, various sectors are taking it on the chin, including automakers, chemical companies, and European financial institutions and indices across the board. But the bleed through of the war into economics doesn’t stop there. There are widespread gas shortages. The euro is enduring one of its worst cycles in years.
The recession, already a concern before Russia’s invasion, is getting deeper. Finally, the overall effect of the military situation is giving new life to a global inflationary resurgence. Here are details about some of the ways in which Western capital markets are feeling the pain.
Companies are Leaving Russia
While corporate exits have the most direct impact on Russia’s domestic economy, the exodus also changes the competitive and fiscal landscape in the home nations of the companies that are rushing to the doors to get out.
International businesses have already said goodbye and packed their bags. The few that have not relocated have either downsized or handed over the local operations to Russian joint owners.
What’s the damage? The monetary cost is at least several billion US dollars. But the long-term toll is what worries many investors and traders because it’s impossible to say whether some of those big brands will feel comfortable returning to the country even after hostilities die down or there’s a cease fire.
In recent times, there just has not been such a large outflow of commercial activity from the once thriving nation.
Market Volatility is Up
For trading and investing enthusiasts, the most apparent result of the Ukraine-Russia military clash is increased market volatility.
By nearly every economic measure, based on the analysis by AvaTrade, capital markets in Europe, the US, South America, and elsewhere have experienced much wider price swings in every asset category. That includes forex, stocks, commodities, and others.
Automotive and Chemical Corporations are Hurting
Among the hardest hit companies since February, chemical corporations are near the top of the list. One reason is connected to the fact that the majority of chemical processing involves the use of natural gas, a commodity that is in short supply amid the war.
Another industry that is suffering is the automotive manufacturing sector. Russia’s citizens purchased large quantities of German-made vehicles before the outbreak of war. Rationing of gasoline and fuel oil during the coming winter are very realistic possibilities as the West’s capital markets continue to reel from the multiple effects of war.
Inflation & Recession Wreck Economies
As 2022 comes to a close, the West’s securities markets are facing a recession. The primary movers of the downturn in business activity include the usual suspects, like gasoline prices. Several of Europe’s government banks have been battling the potential recessional forces by raising interest rates, a tactic that has had limited success in the past.
Inflation is an even more immediate threat to corporate and financial health, particularly as the prices of food and energy-related commodities rise unimpeded.
Together with logistical problems in the global supply chain, international inflation rates are hitting levels not seen in more than a half-century. The cost to borrow money has soared and has the potential to wreak havoc on markets for corporate and government bonds.
Gas Shortages & Euro Currency Pains Abound
Since the February invasion, the euro has fallen by more than 11%. That might not sound like a lot, but it is the largest decline within a year’s time since the currency came into existence in 1999.
If Russian companies continue to withhold gas from European governments and businesses, there could be massively worse consequences both for the euro and economic sectors throughout the continent. That’s particularly true for nations that have the deepest monetary and commercial ties to Russia’s economy, like Italy and Germany.
The problem with gas supplies has two causes. One is the natural shortage caused by the war itself. The second is Russia’s political control of the supply for strategic, deliberate purposes.
Note that since the conflict began, the total of piped-in gas to European nations has decreased by 75 percent. For its part, the Russian government has said that there is nothing deliberate about the decreases. However, regardless of the specific causes, the price of gas has quintupled since February 2022.