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“For women taking control of their financial future”
-Jana Hlistova
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From The Purse
In this week’s newsletter, we consider Russia’s invasion of Ukraine, the impact on the global economy and what this means for your money.
Russia’s invasion of Ukraine signifies substantial risks for a global economy which is still reeling from the pandemic shock.
You can review the news in brief so you stay on top of global financial, economic and investing trends.
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And we hope you can join us for our first live online event on Tuesday, 8th March at 630pm (UK) on International Women’s Day.
Dr Kate Levinson and I will be talking about how women can change their relationship with money.
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Until next week,
Jana
Russia’s invasion of Ukraine: how will this affect the global economy? And what does this mean for for your money?
The global economy is at risk and what does this mean for your money?
Russia’s invasion of Ukraine signifies substantial risks for a global economy which is still reeling from the pandemic shock.
The conflict looks to be the most serious since WWII (1945) in Europe. The Ukrainian capital Kyiv may fall at any time (although, at the time of writing, the Ukrainians have resisted the Russian military offense).
On Thursday, natural oil prices soared by 70% in Europe and crude oil exceeded $105 a barrel for the first time since 2014.
Western governments are taking steps to punish Russia by introducing sanctions including cutting off multiple banks from the SWIFT payment system.
Leading global financial markets plunged on Thursday (including the crypto market), however the outcome could have been more extreme. As the sanctions were introduced by Western governments, the markets rebounded.
However, we simply have no way of knowing how bad things can get. How long will the war go on for? How severe will the sanctions get? Will the war extend beyond the borders of Ukraine?
Therefore global markets could fall even further after they rebound.
What does this mean for the global economy?
The increased geopolitical tensions are set to exacerbate high inflation, supply chain bottlenecks and volatility in financial markets.
If energy prices continued to soar this could easily tip the global economy into recession. And aftershocks from the invasion could make the situation even worse.
All of this will affect corporate and household wealth, global sentiment and household consumption.
This threatens household growth…
…as households spend an increasing amount of their incomes on fuel and heating with less to spend on goods and services.
This is likely to weaken global economic growth, beyond what had previously been forecast.
Central banks, like the US Federal Reserve and the Bank of England, will have to rethink how they approach the interest rate hikes planned and longer term.
The question then remains: how high will inflation go? If the central banks have to remain cautious in tightening monetary policy, will they be able to control (or contain) inflation?
In the UK, fear of the ‘cost-of-living’ crisis looms…
… when the cap on energy prices rises and national contributions increase (to 1.25%) in April of this year.
Real pay levels are already stagnating as inflation outpaces the growth in wages.
By the end of 2024, real wages would still be £740 a year lower than if Britain’s ‘already sluggish’ pre-pandemic pay growth continued.
What does this mean for investors?
Volatility in the global financial markets is expected.
The market is already down from its highs: investors have been selling ‘risk-off’ assets such as tech stocks (and crypto too) and directing capital to value stocks, away from overpriced markets.
According to Du Jun, the chief executive of one of the world's largest cryptocurrency trading platforms, Huobi, the recent downturn could be the beginning of a chilling new crypto winter. A bear market that could see the price of bitcoin and ethereum fall 90% from their all-time highs.
A market downturn is often the ideal time to invest.
Many tech stocks (for example) have dropped 20%, some as much as 50%+. The crypto market is also down approximately 50% from its all-time high in November. And prices may drop further depending on the developments in Ukraine.
Conventional thinking is that when the market drops 20%, it is a good time to start buying (more). And to apply ‘dollar-cost averaging’ which is where you invest a set amount on a monthly basis.
The price of equities or crypto (such as bitcoin or ether) may drop even further, which simply means you can buy more of the stock or crypto at a bigger discount.
When the price goes up, you buy less. However, over time, this will give you an average price for the equity or crypto.
As Warren Buffet says, it is not timing the market, but time in the market that counts.
The key is to avoid selling your existing investments when the market drops-if you can at all help it. You only realise a loss when you sell at a loss. The losses investors make when they ‘panic sell’ can be difficult to recover from.
Disclaimer: everyone’s financial situation is different. You may wish to consult with a financial adviser or financial expert who can review your financial situation.
News in Brief
Financial news
Russia invaded Ukraine (Thursday) and starts war in Europe. In response, the West has imposed a series of sanctions including cutting off multiple Russian banks from the SWIFT payment system.
European natural gas prices soared by almost 70% and crude oil exceeded $105 a barrel for the first time since 2014 after Russia’s invasion of Ukraine triggered fresh worries about global energy supplies.
Markets plunge: FTSE 100 fell 3.6% as Russia invaded Ukraine. Mounting losses for UK stocks brought them closer in line with Europe, where the pan-continental Stoxx Europe 600 slipped 3.4%. The S&P 500 fell 1.4% while the tech-heavy Nasdaq Composite slipped 1.1%.
The Fed’s favourite inflation gauge is up 5.2% which is the biggest annual gain since 1983.
Bank of England (BoE) deputy governor Dave Ramsden said that there will be further interest rate rises in the months to come as the central bank responds to rising inflation. But is it difficult to predict the longer-term path because of heightened uncertainty, including the Russia-Ukraine conflict.
UK house (asking) prices surge in February as demand grows. The average cost of a house rises 2.3% to £348,800. This marked the largest monthly increase since the company started tracking national prices in 2001.
UBS sees short-lived strength for gold, expects prices to drop to $1,600 by year-end.
Number of women in FTSE 100 boardroom roles up to 39% (from 12.5%) in a decade even as equality charities said progress for women in senior leadership roles was severely lagging.
Crypto: bitcoin, ethereum, DeFi & NFTs
‘Big risk-off’ move sweeps the crypto market. Following Russia’s invasion of Ukraine (Thursday), Bitcoin was trading down 7.9% (over the last 24 hours), while ether was trading down more than 10% over the same period. Long-tail assets saw an even steeper sell-off, with Avalanche, Shiba Inu and Cardano falling by double-digit percentage points. The prices later rebound-see the bitcoin & ether price. The crypto market remains down by almost 50%.
European Parliament delays vote on crypto assets bill over proof-of-work debate because of public outrage. The MiCA Directive is ‘not to be misinterpreted as a de facto Bitcoin ban’.
Du Jun, the chief executive of one of the world's largest cryptocurrency trading platforms, Huobi- the recent downturn could be the beginning of a chilling new crypto winter. A bear market that could see the price of bitcoin and ethereum fall 90% from their all-time highs.
$500K of bitcoin (14.5 btc) has been donated to one of Ukraine’s largest organisations supporting the military after Russia invades.
BNY Mellon scales up crypto ambitions -by tracking customers’ bitcoin. The world’s largest custodian bank is integrating Chainalysis to help with risk management.
Marvel producer Arad to turn Huxley Ethereum NFT comics into film. Ben Mauro’s post-apocalyptic digital comic tale will become a feature film, alongside interactive metaverse experiences.
Sotheby’s withdrew a lot of 104 CryptoPunks before its auction was set to begin. The value of the lot had been estimated to be between $20m and $30m.
DAO treasuries drop $3.1bn over last month. Assets under management controlled by DAOs have dropped by over $1bn in the last week amid a wider crypto market slump.
Coffee Break? Read This
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