Stocks Next Week: The war in Ukraine sparked a scramble for dollars

What’s happening: The dollar rose to its highest level since spring 2020 last week as concerns grow about how this could happen Russia’s war in Ukraine It will bounce through the global economy and financial markets.

One of the reasons for its sharp rise: investors decided that they did not want to hold the euro anymore due to Europe’s proximity to the conflict. They got rid of the bloc’s single currency and bought dollars instead.

“European markets are simply not attractive at the moment simply because of their geographical exposure to Ukraine and Russia,” ING strategist Francesco Pesol told me.

Natural gas prices in Europe hit record highs last week due to concerns about what will happen to energy exports from Russia. The United States, itself a major energy producer, is being criticized for higher costs, but to a lesser degree.

The US economy also looks healthy despite rising inflation: 678,000 jobs were added in February, data released on Friday showed, smashing expectations.

In addition, the dollar got a boost after Federal Reserve Chairman Jerome Powell said the central bank aims to begin raising interest rates later this month, although the situation in Ukraine has clouded expectations. Higher interest rates should help attract capital from abroad, especially if policymakers in Europe have to delay their increases for a longer period.

There is one more thing: in times of crisis, there are no currency investors and policymakers prefer to hold out. The dollar made up 60% of global reserves in 2021.

“Markets and central banks want to keep the dollar because it is a very liquid currency. It is highly tradable,” Bisol said. “It is backed by a very strong and solid economy.”

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A strong dollar can hurt the profits of companies that make money abroad, but the biggest concern is how the dollar’s rise will affect emerging economies, which often have to service their dollar debt.

There was already some concern about whether the Russian economic meltdown would also cause investors to abandon riskier markets such as Brazil, Turkey or Mexico. A rising dollar could add to the pressure.

Watch this space: There has been some talk about whether the Russian war in Ukraine could shake up the dominance of the dollar, reinforcing Moscow’s — along with Beijing’s — resolve to develop alternative financing mechanisms that would make Western sanctions less effective over time. However, the end of the Dollar King has been called many times before.

“There is really no indication that the dollar’s dominance is diminishing,” Bisol said. “This is the [storyline] It can only be in the long term.”

The Russian war really changed the world economy

Barely a week of war in Ukraine shook the global economyRapid Western sanctions has isolated Russia, its currency and financial assets have collapsed, and energy and food prices have skyrocketed.

Quick return: Russia’s $1.5 trillion economy is 11th in the world, according to data from the World Bank. A month ago, the country was doing a bountiful energy trade, exporting millions of barrels of crude every day with the help of major oil companies. Western brands were actively doing business in Russia, investors were lending to their companies.

Now, a barrage of sanctions has made Russia’s largest banks radioactive, traders are shunning barrels of Ural crude, and Western companies are fleeing the country or closing their stores, my CNN business colleague Charles Riley reports. Russian stocks were expelled from global indices, and trade in some Russian companies in New York and London stopped.

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The big picture: Russian President Vladimir Putin’s invasion of Ukraine was met with an unprecedented response from the United States, United Kingdom, European Union, Canada, Japan, Australia and other countries. Even Switzerland, famous for its neutrality and banking secrecy, has vowed to impose sanctions on Russia.

The sanctions prevented Russia’s two largest banks, Sberbank and VTB, from trading in US dollars. The West has also removed several Russian banks – including VTB – from SWIFT, a global messaging service that connects financial institutions and facilitates fast and secure payments.

The alliance is trying to prevent the Russian Central Bank from selling dollars and other foreign currencies to defend the ruble and its economy. In total, nearly $1 trillion in Russian assets have been frozen due to the sanctions, according to French Finance Minister Bruno Le Maire.

“Western democracies have surprised many with a strategy of putting intense economic pressure on Russia by effectively isolating it from global financial markets,” said Oliver Allen, markets economist at Capital Economics, in a research note.

“If Russia continues on its current course, it is very easy to see how the latest sanctions could be just the first steps in a sharp and lasting severing of Russia’s financial and economic relations with the rest of the world.”

next one

Tuesday: earnings from Dick sporting goods (DKS)Bumble, Figs and Stitch Fix
Wednesday: China inflation data; earnings from Campbell’s soup (CPB)And Oatly, Asana, and CrowdStrike
Thursday: European Central Bank meeting; US inflation data; earnings from American outdoor brands (AOBC) and Rivian

Friday: Consumer opinion at the University of Michigan

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