Macroscope | Don’t expect a Ukraine truce to inspire a stock market ‘relief rally’ – inflation, slowing growth will see to that

Name: Ukrainian city of Mariupol descends into despair with over 2,000 people killed since start of war
Uploaded: 2022-03-20T19:30:15.000Z
Duration: 1 min 33 s
Description: Ukrainian city of Mariupol descends into despair with over 2,000 people killed since start of war

Investors should not expect any relief in a world veering towards recession, or worse, and where central banks have largely ended the flow of easy money

Any unexpectedly early end to the war will not fix rising inflation, supply chain disruptions or reduced business confidence

Reading Time:3 minutes

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Russian President Vladimir Putin is seen on a TV screen at the stock market in Frankfurt, Germany, on February 25. Photo: AP

Anthony Rowley

Published: 3:30am, 21 Mar 2022

The belief in stock markets that a “relief rally” will be justified once the Ukraine conflict eases is as shortsighted as the repeated call to “buy the dip”. The days of easy money to bolster markets are over, and so are those of booming trade and investment that buoyed growth.

The simple fact is that no relief is in sight for a global economy that is sliding at an accelerating pace towards recession and stagflation, or worse. Reluctance to accept this is not a case of hope springing eternal but is, rather, an inability to appreciate cause and effect.

There were false relief rallies when US president Donald Trump’s trade wars against China died the death they deserved, when the pandemic proved less than invincible, and when supply chains proved more resilient than feared. A ceasefire in Ukraine would no doubt provoke a similarly irrational reaction.

As economist John Maynard Keynes reportedly observed, “Markets can remain irrational longer than you can remain solvent”. He also noted that markets are moved by animal spirits and not by reason.

International Monetary Fund managing director Kristalina Georgieva summed up the situation well when she noted that Russia’s invasion of Ukraine is taking a horrific human toll, but the war is also fuelling inflation and shaking financial confidence, with far-reaching consequences for the global economy.

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Ukrainian city of Mariupol descends into despair with over 2,000 people killed since start of war

Laurence Boone, chief economist for the Organisation for Economic Cooperation and Development, said in an initial assessment of the Ukraine conflict: “We do not yet know how this will fully play out, but we do know this will hurt the global recovery and push inflation up even higher. We also see that this war has set in train deglobalisation forces that could have profound and unpredictable effects.”

.css-1m2rp1p{color:#34b8b5;}Macroscope | Don’t expect a Ukraine truce to inspire a stock market ‘relief rally’ – inflation, slowing growth will see to that

Macroscope | Don’t expect a Ukraine truce to inspire a stock market ‘relief rally’ – inflation, slowing growth will see to that