| Ronen Menachem, Chief Economist of Mizrahi Tefahot Bank
The capital, currency and energy markets are reacting aggressively to the start of the military campaign in Ukraine. The reactions could have been even sharper, but in recent days there has been international recognition that a Russian attack is only a matter of time, so there is no surprise here.
The sequel encodes a high level of volatility and nervous markets. First, the continuation depends on the duration of the campaign – how quickly a decision will be reached and where the forces will stop. Putin said, among other things, that he has no intention of annexing Ukraine, but the war dynamics may change that.
Secondly, the more severe sanctions are now imposed on Russia, the more likely it is to persuade it to settle for limited achievements. Not for nothing did the markets temporarily recover when President Biden announced. NATO members and many other countries have since announced various sanctions on Russian companies and individuals, and we are witnessing repercussions on the Moscow Stock Exchange, which has fallen and is now on a ceasefire.
Third, at the same time feverish diplomatic contacts are taking place and the UN Security Council has convened for an emergency discussion. The question of their success in preventing further escalation is extremely important.
The markets will move in the immediate and short term and will be run according to these three factors.
In this context, there is a great deal of uncertainty – how Russia will respond to severe sanctions. The question arises as to whether it will halt the supply of oil and natural gas to Europe, for example, in response to the drastic step taken by Germany, which halted the opening of the Nord Stream 2 gas pipeline, which is so important to Russia.
It is not clear whether the current jump in the price of the $ 100 barrel completely embodies such a scenario.
Russia and Ukraine are also supplying wheat in large quantities to countries in the Middle East and Africa – which could push up food prices, which have also risen recently.
Another question is China’s behavior – which supports Putin and does not join the sanctions, when it examines the results of the Russian move in the context of its similar intentions towards Taiwan.
At the local level, the sharp declines in overseas stock markets herald the continued depreciation of the shekel against the dollar, and there is another reason for this – the strengthening of the world dollar on a safe-haven currency standard in periods of sharp deterioration in risk aversion.
Of course, a sharper devaluation of the, as it happens, will constitute a local inflationary factor, but at this stage it is too early to attribute to this real effects on the conduct of the domestic market.
The author is the chief economist of Mizrahi Tefahot Bank. This review is not a substitute for investment marketing that takes into account the data and special needs of each person.