Ukraine tension could shock global economy

Despite a partial recovery in global stock markets from Monday's fall – the FTSE 100 fell by 1.49%, the Dow Jones fell 0.94%, the S&P 500 lost 0.74%

The impact of rising commodity prices, as a result of events in Ukraine, could have a knock-on effect on market sentiment and economic growth.

ukraine tension could shock global economy

Ukraine tension could shock global economy

To try to protect the sliding value of the rouble, Moscow has been forced to sell off gold and foreign currency worth £6 billion and Russia’s central bank raised its key interest rate from 5.5% to 7% to try to stop investors taking their money out of the country.

Despite a partial recovery in global stock markets from Monday’s fall – the FTSE 100 fell by 1.49%, the Dow Jones fell 0.94%, the S&P 500 lost 0.74% – many are worried that any sanctions will have an impact on commodity markets.

The first commodity to move was gold – a safe haven in times of global strife – which climbed two per cent to $1,384.8, nearing a four-month high. Reuters reported that gold traders are setting their sights on $1,400 an ounce, a price not reached since September 2013.

Fears about the stability of oil and gas imports from Russia fuelled a surge in the benchmark Brent crude oil price, which gained $2 a barrel to $111 yesterday, although it had fallen back to $109.63 this morning amid speculation that supply concerns may be exaggerated.

The price of UK natural gas for delivery next month also spiked, rising by as much as 10% to finish the day up from 57p to 61p per therm, according to the ICE Futures Europe Exchange.

However, Europe’s mildest winter since 2007 has left the region with enough natural gas in storage to cover any future disruption in flows from Ukraine for about 45 days.

As of March 2, European inventories were 49% full, according to Gas Infrastructure Europe, a lobby group of pipeline operators in Brussels.

Schroders Asset Management said that, as Russia’s chief exports are oil related, any sanctions will likely drive up energy costs and could transmit a “stagflationary shock to the global economy”.

“Ukraine is a major wheat producer, so we would expect food prices to be similarly adversely affected,” said the Schroders’ spokesperson.

The RAC warned the most immediate consequence of the turmoil in Ukraine would be a spike in petrol prices.

The motoring organisation says fuel traders have already begun to buy up stocks to guard against being caught out in the event of the situation worsening, which automatically causes prices to increase due to a tightening in supply.

And, to make matters worse, the price of oil will almost certainly be negatively affected, further increasing fuel costs and, in turn, forecourt prices.

However, even before the appearance of Russian troops in Ukraine, the RAC says wholesale prices had begun to rise again as a result of the pound losing ground against the dollar and declining oil stocks, thereby causing prices to rise.

RAC head of external affairs Pete Williams said: “The tensions in Ukraine will unfortunately affect everyone driving a vehicle in the UK as the fuel market is intrinsically linked to major international political events.

“While we can all only hope for a speedy resolution to this situation, from a motorists’ perspective, we really need the pound to continue performing well against the dollar as this could help to offset some of the inevitable price rises.”

Ukraine & Equity Release

What Is Equity Release?

Equity release is the use of financial arrangements that provide the owner of a house, or other property, with funds derived from the value of the property while enabling them to continue using it.

How Does Equity Release Work?

Equity release is aimed at homeowners aged 55 and over. It allows you to take some of the value of your home as cash.

Equity Release on stock Market surges

For homeowners over the age of 55, equity release offers a way of unlocking the value of their properties, whether for home improvements, paying off other debts, or helping family members. Interest on the loan is paid through the sale of the house at the end of the term, so unlike a conventional mortgage, a borrower is not required to demonstrate a minimum level of income to qualify. Interest rates are higher for these “lifetime mortgages” than for most mainstream mortgages. Key said rates on equity release were still “significantly under those recorded historically” but had crept up from a low of 2.8 percent in the last quarter of 2020 to 3.16 per cent in the latest three-month period.

Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.
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