War in Ukraine will likely cause stagflation in the global economy and negatively impact the stock market, an analyst has predicted. 

Sanctions have already wreaked havoc on the Russian economy and the Moscow stock exchange remained closed all last week. However, Paul Sommerville, CEO of Sommerville Advisory Markets, said the sanctions would mean rising costs for westerners as well - all of which would negatively impact the stock market: 

“Oil prices have been on the move for the last year and a half… it’s now trading at $115,” Mr Sommerville told Down to Business. 

“Wheat prices are up 70% this year but they were already up 40% before the war broke out. 

“We’ve got coffee up 75%, aluminium up 70%. These are all one year numbers. 

“Gas prices are up 70%. So you can see things are [leading to] stagflation. 

“What does stagflation mean? It means there is an inflationary environment, the growth is slowing in the world economy. So that’s where the worry lies and it should worry investors because that should compress margins for stocks. 

“So I would expect stock prices to get hit as the year goes on because their import costs are going up hugely but they’re not going to pass those on to consumers.

“So stagflation, which we’ve been going on about for maybe a year and a half, two years, is really the thing we have to worry about.” 

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Some markets, however, are less exposed to the Russian economy than others and so far US stock prices have held up better than those in Europe: 

“It’s been a very interesting couple of weeks,” Mr Sommerville opined. 

“Actually since last November the stock markets have been under pressure. So coming into before the war we had maybe a 15/16% downturn on the NASDAQ index in the USA. 

“The S&P doing slightly and European stocks wilting somewhat, so pressure has been on stocks ever before the war was announced. 

“What is very interesting is the volatility and what has happened to stock markets since seven or eight days ago because what we’ve seen is the European stock market has fallen precipitously… while the US stock markets are holding up very well.” 

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