The markets are bouncing back from the losses earlier this year. “Sell on the rumor, buy on the news.”
It’s clear that Russia will overrun Ukraine, kill or imprison the leaders and install their own puppet government. Putin is calling President Zelensky a “terrorist” and the Ukrainian fighters “nationalist resistance” that is committing genocide against Russian-speakers in Ukraine. This propaganda gives Putin cover for deadly punishment of his enemies.
The longer-term impact of the Ukrainian conquest is yet to be seen. Sanctions against Russian exports could worsen inflation. Russia and Ukraine together produce nearly a quarter of the world’s wheat, feeding billions of people in the form of bread, pasta and packaged foods. The countries are also key suppliers of barley, sunflower seed oil and corn, among other products. Food prices will rise all over the world if these exports are halted.
Inflation rose again in January 2022, pressuring the Federal Reserve to raise interest rates. The long-term inflationary effect of Russia’s invasion of Ukraine has yet to be felt.
**Ukraine War Means Another Supply Shock to Global Economy, the Last Thing It Needs**
**Shortages of oil, gas and other commodities will exacerbate inflation just as central banks are trying to tame it**
**by Jon Hilsenrath, The Wall Street Journal, Feb. 25, 2022**
**The global economy is still recovering from a series of supply shocks over the past two years, having suffered shortages of grains and meats, durable goods and other products. Now, military conflict in Ukraine, Western sanctions against Russia, and Russian economic retaliation have driven oil prices near $100 a barrel, and natural-gas prices are also up.**
**Russia is also a big player in global markets for copper, aluminum and palladium. Disruptions in Russia’s production or delivery of those products could throw off supply chains for catalytic converters in cars, capacitors used in cellphones and even dental crowns. Russia’s MC Norilsk Nickel PJSC is the world’s largest producer of palladium, with more than 40% of total global output by its own estimates. The country is also a producer of urea and potash, components of fertilizer....** [end quote]
In January, the consumer price index soared 7.5% from a year earlier, with core CPI up 6%. Producer prices climbed 9.7% on a 12-month basis last month. The added inflation from the Russia sanctions will begin to bite in the next few months.
The markets have no conscience. They don’t care about the injustice and suffering in Ukraine. They only care about the financial and economic forces controlling the flows of money.
Even if the markets write off Ukraine for today, the slowly-developing impacts indicate negative forces. Increasing inflation, increasing interest rates, pressure on unprofitable and overpriced company stocks.
The risks are high. The trends are dangerous.