Both the oil embargo on Russian oil from the EU and Putin’s threat to stop implementing contracts with “enemy” countries are largely included in the price of the raw material, which explains its high volatility.
The price of gas is also expected to rise. This was commented by the financial analyst Andrey Stoychev on the air of the show “The World is Business” hosted by Ivaylo Lakov.
This applies to both energy resources and metals, while additional unknowns have an effect on food, which “keeps the market alert”, Stoychev added, referring to Ukraine’s role as an important producer of basic food and its production next year.
In 2022, the markets will not be one-way as in previous periods, he commented.
The US Federal Reserve is expected to raise interest rates more aggressively by 0.5% at its meeting on Wednesday. Markets are no longer reacting so impulsively to military action in Ukraine, monitoring more the macro situation around the end and the consequences of the crisis for the economies of all countries involved. Much remains unknown about the development of the pandemic, high inflation, and plans by the Fed and the European Central Bank to deal with them, Stoychev said.
The impact on inflation of rising interest rates will not be felt immediately, but markets are already reacting, Stoychev said.
“The higher the interest rates, the more the appetite for high-risk assets decreases, and the capital moves to places where they are a little more protected, but have a good enough return in terms of expected interest rates,” the guest explained.
This affects the outflow of fresh capital from the capital markets, where the situation will take on a negative connotation, as evidenced by the rapid decline in the technology sector, Stoychev said. The rise in interest rates also leads to increased interest in government securities, as evidenced by their increased yields.
In cryptocurrencies, there is an even greater correlation with capital markets, especially the Dow Jones and NASDAQ in the United States, due to the entry of large traditional investors.
“With the end of the pandemic, germs of inflation have sprung up, prompting central banks like the Fed to look to curb liquidity inflows and be a little more aggressive than originally planned interest rate hikes. to Russia and to Russia to Ukraine and its supporting countries. ”
This has created additional uncertainty and processes that disrupt the normal business of various companies, and there is much uncertainty about longer-term market trends in terms of military action and the impact of the coronavirus on China.
According to him, the situation with the coronavirus in China is developing in a negative way and it is not clear in the fall what the numbers, strains, and possible concerns in Europe and the United States will be.
The technology sector could suffer in a similar situation, which will give a boost to companies in the military-industrial complex. Some European actions are under pressure from the military crisis, while new opportunities are emerging for others.
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