Weekly Economic & Financial Commentary: Some Economic Implications of the War Between Russia and Ukraine

Summary

United States: Russia-Ukraine Conflict May Push Up Prices, but Inflation Has Yet to Slow Spending

• The Russian invasion of Ukraine dominated news headlines this week, and we cover the economic and financial implications of the conflict in a number of sections. One of the initial implications of the Russia-Ukraine conflict domestically is that higher oil prices will likely keep inflation higher for longer. That said, while consumers continue to contend with higher prices we haven’t yet seen inflation meaningfully weigh on spending.
• Next week: ISM Manufacturing (Tue), ISM Services (Thur), Nonfarm Payrolls (Fri)

International: Risk Assets Came Under Pressure This Week

• The military conflict sent risk-assets prices, particularly within the emerging markets, sharply lower. Sovereign bond yields jumped, while Russian credit default swap spreads spiked to the highest on record. Other risk-sensitive currencies and asset prices within the emerging markets fell sharply lower as well.
• Next week: India GDP (Mon), Bank of Canada Rate Decision (Wed), Brazil GDP (Fri)

Interest Rate Watch: Russia Roils the Rates Market

• Russia’s invasion of Ukraine this week rocked financial markets and added additional uncertainty to the interest rate outlook. Initially, Treasury yields plunged across the entire curve, but yields have shaken off the initial shock.

Credit Market Insights: Small Businesses Are on the Mend, but Full Recovery May Be a Marathon

• Small Business Credit Survey data show small businesses’ circumstances improved last year, but there remains a long road to pre-pandemic standards. But future growth expectations rose, and signal there’s ample runway for small businesses’ recovery to take off.

Topic of the Week: Some Economic Implications of the War Between Russia and Ukraine

• Parsing out the precise economic implications of the war is essentially impossible, but we lay out some data and scenarios in our column and report. While we are not necessarily forecasting that oil prices will remain well above recent averages, we use a macroeconometric model to analyze the potential economic implications of higher oil prices as a result of the recent hostilities.

Full report here.