Frankfurt European financial markets face an uncertain start to trading on Monday. How the week starts depends on the latest developments in the Ukraine war. This is already illustrated by the last two trading days of the past week.
The major turmoil in the financial markets on Thursday was the direct result of the start of the Ukraine invasion. The mood normalized on Friday, also under the impression of possible new diplomatic initiatives and potential offers of talks from Moscow. After the massive increases on Thursday, energy prices eased again somewhat. Share prices recovered noticeably: the S&P 500 rose by 2.5 percent, the Dax gained 3.7 percent.
On Wall Street, stocks from the areas of finance, armaments and pharmaceuticals were in particularly high demand. However, some titles lost massively after poor company prospects. The shares of the sports shoe manufacturer Foot Locker fell 30 percent, those of the computer company Dell eight percent and those of the meat substitute producer Beyond Meat about nine percent.
Among the German blue chips, some stocks gained more than five percent: MTU Aero Engines, Airbus, RWE, Deutsche Bank, Vonovia, Volkswagen and Brenntag. At Volkswagen, Porsche’s IPO, which was taking shape, provided a stimulus.
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Parallel to what was happening on Wall Street, the issue of defense played a role with regard to Airbus. In the MDax, the Rheinmetall course rose by seven percent. The rebound in financials in Germany reflected Deutsche Bank’s gain and Commerzbank’s nine percent rise. BASF, on the other hand, suffered from bad company data.
Proximity to Ukraine as a risk
In a weekly review, the US markets were able to increase slightly overall after strong daily fluctuations. The Dax, on the other hand, was still around three percent below its previous week’s close on Friday. As the distance from the conflict region of Ukraine decreases, the discounts increase. For example, the Polish stock market is down eight percent on a weekly basis.
Friday’s strong rallies are just snapshots. “The international capital markets will have recovered from the Ukraine shock in a few weeks,” says Carsten Mumm, chief economist at Donner & Reuschel, describing his basic scenario. The first question, however, is what will happen in the coming days. The development here is incalculable. Robert Halver, head of capital market analysis at Baader Bank, believes: “Once the vicious circle of sanctions and counter-sanctions sets in, there is no end in sight.”
Burden for German stock exchange
The well-known fund manager Jens Ehrhardt is rather skeptical. The founder of wealth management company DJE Kapital sees the USA as the winner of the power struggle, and Russia and Germany as the losers. He believes: “I’m afraid the burdens will be serious in the long term, especially for the German stock exchange.”
From an economic perspective, it’s about inflation and growth. “Because of its great dependence on Russia as the main supplier of oil, gas and hard coal, a worsening energy shortage would hit Europe and Germany in particular,” says Halver. On the other hand, the increasingly good economic mood is having an effect due to the gradual lifting of the corona restrictions.
Turnaround in interest rates in question
In addition to the development of the Ukraine conflict, the big topic is the implementation of the interest rate turnaround announced by the US central bank. Some experts suspect that the economic skid marks caused by the geopolitical conflict could delay this turnaround.
“The Fed is likely to initiate the turnaround in interest rates at its upcoming meeting on March 16 with a key rate hike,” says Halver. She will keep a loophole open and emphasize that she always rethinks her decisions in relation to data.
The European Central Bank, on the other hand, could postpone a decision on ending its bond-buying program and raising deposit rates because of the conflict.
In principle, the central banks are faced with a dilemma: “Although higher energy prices fuel inflation, they also represent an economic risk.” However, the central banks could not cope with the higher energy prices. Overall, the central banks would give economic stability clear priority over price stability.
The next important dates
In view of the geopolitical uncertainties, the forthcoming economic data are taking a back seat. Nevertheless, investors will take a look at those numbers that are important in assessing future inflation and the economy. In particular, these are the preliminary February inflation figures for Germany on Tuesday and the euro area on Wednesday. In both cases, job numbers follow on Thursday.
In the US, the purchasing managers’ reports are on the daily calendar on Tuesday and Thursday. The US Federal Reserve will present its economic report on Wednesday. Also important is the labor market report for February on Friday.
More: How crises and wars affect stock exchanges – lessons from the past.