Fear is often the thing that drives the market into a rampage. Investors fear the unknown, and while we all know that war has consequences, there are also many unknowns in the market. Inflation is rising, commodities are becoming scarce and consumer confidence is low. This article will cover how the war is reshaping global financial markets and where the markets will go.

The general impact of war on the economy

In the past, conflict has caused inflation, resulting in people losing savings, increased uncertainty and a lack of trust in the financial systems. The Confederacy, for example, struggled financially to fulfill the war’s costs throughout the American Civil War. As a result, they began printing money to pay troops’ salaries, also known as quantitative easing in economic terms. However, as they created money, the value of that money fell rapidly. Middle-income savers are the worst hurt by high inflation since the value of their assets is wiped out. Luckily, these are not currently problems, as NATO has excluded itself from intervening militarily. Wars can cause a sudden boost in domestic demand, but recent sanctions on Russia caused supply issues, constraining commodities while demand remains unchanged. This ultimately leads to inflation. In addition, it’s essential to consider the costs of military supplies sent to Ukraine and rebuilding of the Ukrainian economy upon the end of the war, as well as the lives lost.

Inflationary issues

Firstly, the prices of many valuable commodities have surged following Russia’s ‘special operation’ to invade Ukraine, resulting in sanctions increasing the prices of essential Russian exports in the past weeks, drastically impacting analysts’ inflationary predictions. While many countries have already seen inflationary issues in the last months due to supply chain disruptions, the prices of grain, gas and more will start increasing following the hefty sanctions on Russia. However, many analysts expect the inflation to be temporary.

Fear in the market

The steep drops in the financial markets due to Western sanctions are very noticeable. Moreover, Russian markets and global markets feel the aftermath from these sanctions. Still, securities in the weaponry sector tend to do well in times of war. Amid the Russian invasion, the Moscow Exchange suspended all trading in the market without any indication of when it would re-open. This was done to prevent a further drop of the markets after they had already dropped by more than 11 percent. Recently, trading in the Russian stock market has picked up again, but remains limited, causing further worries for anyone holding any company listed on the Moscow Exchange.

Consumer behavior

Inflation and rising interest rates cause consumer behavior to change drastically. In contrast to last year, consumers are becoming more wary about where they spend their money. Many people experience inflation closely and are finding it difficult to pay their energy bills. A survey suggests that individuals’ confidence in their financial situation is close to an all-time low as worries about the war, inflation and other issues arise.