Money

Post Market Wrap | Europe to feel economic brunt of war on Ukraine

Published

3 years ago

March 21, 2022

Michael Kodari - KOSEC Author

This Post Market Wrap is presented by KOSEC – Kodari Securities

Economic impact on Australia appears neutral at worst
Australian exports at record high of $49.2B in January
Strong employment growth boosting Australian economy
Domestic inflation likely to peak in June 2022 according to RBA
Australian equity market to remain resilient, despite potential for higher interest rates.

Impact of Ukraine/Russia conflict on trading in 2022

The impact of the war in Ukraine is likely to be felt most severely in Western Europe (notably Germany), more than anywhere in else in the world, except for Russia, where crippling economic sanctions are yet to fully bite.

Europe is heavily dependent on Russian natural gas and oil for its energy consumption. Sanctions imposed on Russian energy exports have pushed global oil and gas prices materially higher for European consumers. Significantly higher energy prices have an immediate dampening effect on consumption but can also be inflationary. The extent to which European consumption falls because of higher energy prices, will determine the response by European Central Banks to the threat of higher inflation. Lower economic growth rates may do the work of Central Banks and reduce the need for monetary tightening through higher European Central Bank interest rates. This appears to be the case for now.

The economic impact of the conflict is neutral or perversely slightly positive for the US, China and Australia. This is because the US and Australia have negligible export exposure to Russia and Ukraine, while the US is a net exporter of energy. Australia’s major export partner is China which accounts for about 35 percent of Australian exports, after Japan at about 12 percent, followed by South Korea and the US each at about 6 percent. Russia and Ukraine account for just 0.2 percent of Australian exports. China, Japan, and South Korea are not directly impacted by the war on Ukraine.

China’s position to date in the Ukrainian crisis is one of inaction, despite it being impacted by higher energy and commodity prices. Just how long China will not involve itself in the crisis may be determined by the severity of the impact of higher commodity prices on its economy. Should the economic impact on the Chinese economy become severe, China may be able to exert political influence on Russia to end the war on Ukraine, or at least moderate the level of human devastation.

Implications for Australia

Australian exports hit a record high in January 2022 of $49.2 billion.

The war on Ukraine has boosted demand and prices for our major exports, especially Liquid Natural Gas (LNG), coal, nickel, copper, lithium and gold, as well as agricultural exports of wheat, wool and beef.

LNG prices are linked to the price of oil with a 4-month lag, implying higher LNG prices are on the way for Australian exporters like Woodside Petroleum and Santos. Similarly, Russia is the world’s largest wheat exporter ahead of Australia, being the fourth largest exporter, meaning Australia is now a significant beneficiary of higher wheat prices. Recent rains are likely to support higher wheat production in Australia over the coming 2 years. This follows current production levels already at a level 32 percent higher than the 10-year average.

These developments support a strong growth outlook for the Australian economy. This has obvious implications for Australian interest rates. The RBA has flagged the potential for higher interest rates in response to higher inflation. The RBA estimates inflation to reach 3.25 percent by June this year, before settling at 2.75 percent out to June 2024. This inflation trajectory signals higher interest rates in Australia. However, the crisis in Ukraine and resultant higher energy prices may see a slightly less aggressive tightening than would otherwise be necessary. The outlook is complicated by strong domestic employment and wages growth, brought about by strong exports.

Image: File

The Australian equity market sold off in late January and is down approximately 3.8 percent year-to-date, although it has since recovered from the January low. Global markets more generally have been hit harder and are down about 10 percent from their recent peak. It appears that for now the impact of the crisis in Ukraine, and the likely rise in interest rates on the back of higher inflationary expectations, are already factored into equity markets.

In Australia, the sell-off has been muted by record exports and the persistently strong economic growth outlook which is maintaining near-full employment levels and encouraging higher wages.

The evidence suggests that it will take more than a few interest rate rises to panic the Australian market into a prolonged sell-off.

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.

Money

Dow rebounds 650 points, still worst week since 2023

Dow gains over 650 points in relief bounce but still faces worst weekly loss since 2023 amid ongoing tariff uncertainties.

Published

12 hours ago

March 15, 2025

Ahron Young

Dow gains over 650 points in relief bounce but still faces worst weekly loss since 2023 amid ongoing tariff uncertainties.

In Short

Stocks rebounded on Friday, with the Dow gaining 674.62 points, and the S&P 500 and Nasdaq experiencing their best day of 2025. Despite this, all major indices faced weekly losses due to ongoing trade policy concerns and declining consumer confidence.

Stocks rallied on Friday, reversing some losses from earlier in the week.

The Dow Jones Industrial Average gained 674.62 points, or 1.65%, closing at 41,488.19.

The S&P 500 climbed 2.13% to finish at 5,638.94, while the Nasdaq Composite rose 2.61% to settle at 17,754.09. This marked the best day for the S&P 500 and Nasdaq in 2025.

Big tech companies rebounded sharply, with Nvidia up over 5%, Tesla rising nearly 4%, and Meta Platforms gaining close to 3%.

Amazon and Apple also saw increases.

The market bounce was attributed to a lack of new tariff-related news from the White House, alleviating some investor concerns.

Following a drop on Thursday, the S&P 500 entered correction territory, having fallen more than 10% from its recent peak.

The Nasdaq slid deeper into correction, while the small-cap Russell 2000 neared a bear market. Uncertainty stemming from President Trump’s trade policies has contributed to heightened market volatility.

Despite Friday’s gains, the three major indices experienced weekly losses, with the Dow down about 3.1%—the worst week since March 2023. S&P 500 and Nasdaq both fell over 2% for their fourth straight weekly decline.

Consumer confidence also declined amid ongoing tariff concerns, with sentiment dropping to 57.9 in March.

Investors await an upcoming Federal Reserve policy meeting, where a majority expect interest rates to remain unchanged.

Money

S&P 500 correction worsens amid Trump’s tariff threats

S&P 500 enters correction as stocks plummet amid Trump’s tariff threats, marking a challenging week for Wall Street.

Published

2 days ago

March 14, 2025

Ahron Young

S&P 500 enters correction as stocks plummet amid Trump’s tariff threats, marking a challenging week for Wall Street.

In Short

Stocks plunged on Thursday, with the S&P 500 down 1.39% and entering correction territory, while the Dow and Nasdaq also fell significantly. Market uncertainty continues due to President Trump’s tariff threats, leading to losses predicted for the week across major indices.

Stocks fell sharply on Thursday as the S&P 500 entered correction territory, dropping 1.39% to close at 5,521.52.

The decline marked a significant downturn where the index sits 10.1% below its record high. The Dow Jones Industrial Average also suffered, losing 537.36 points or 1.3%, closing at 40,813.57, marking its fourth consecutive day of losses. Meanwhile, the Nasdaq Composite fell 1.96%, with major players like Tesla and Apple being negatively affected.

Tariff threat

The market’s downward trend has been exacerbated by recent tariff threats from President Trump. He proposed 200% tariffs on EU alcoholic products in response to a 50% EU tariff on whisky, indicating a firm stance on expanding trade restrictions.

Investor confidence has been shaken by his unpredictable trade policies, contributing to a week where the S&P 500 and Nasdaq are projected to post losses of 4.3% and 4.9%, respectively. The Dow is on track for a 4.7% decline, potentially experiencing its worst week since June 2022.

Small-cap stocks are also suffering, with the Russell 2000 nearing bear market conditions, down approximately 19% from its peak. Portfolio managers express concern that ongoing tariff disputes continue to foster market uncertainty.

Despite some positive signs in inflation data, analysts doubt a significant market rebound is likely, as worries about Trump’s trade approach remain a critical concern for investors.

Money

Poll: 57% find Trump’s economic actions too erratic

57% of Americans view Trump’s economic actions as erratic, with concerns over tariffs raising prices, a poll reveals.

Published

3 days ago

March 13, 2025

Ahron Young

57% of Americans view Trump’s economic actions as erratic, with concerns over tariffs raising prices, a poll reveals.

In Short

A recent poll shows 57% of Americans believe Trump’s economic actions are erratic, with 70% fearing rising tariffs will increase prices. Despite this, many Republicans still support his economic policies, believing they will benefit the economy in the long run.

A recent Reuters/Ipsos poll reveals that 57% of Americans view President Donald Trump’s actions regarding the economy as too erratic.

This sentiment follows his aggressive import taxation strategies, which have unsettled the stock market.

Approximately one third of respondents expressed that Trump’s actions are not overly erratic, while 11% were unsure or did not provide an answer.

Interestingly, about one in three Republicans also consider Trump’s actions erratic.

Despite this, 79% of Republicans in the poll agree with the notion that Trump’s economic strategies will be beneficial in the long term, indicating that while some may not resonate with his approach, they support the underlying policies.

Trump’s policies

Overall, 41% of all respondents, and only 5% of Democrats, believe Trump’s economic policies will yield positive results eventually.

Furthermore, 70% of survey participants anticipate that increasing tariffs will lead to higher prices for everyday items, including groceries.

Additionally, 61% of respondents stated that managing rising prices should be Trump’s primary focus.

The poll included 1,422 U.S. adults and has a margin of error of 3 percentage points.

This latest data offers insights into public sentiment surrounding Trump’s economic management, highlighting concerns over his erratic approach alongside a degree of support for his policies.