Where six months of war in Ukraine leaves markets

By Julia Horowitz, CNN Business

When Russian President Vladimir Putin launched his unprovoked invasion of Ukraine in late February, investors were as shocked as much of the rest of the world. They rushed to digest the consequences, as the war disrupted supply chains and triggered unprecedented Western sanctions, straining a global economy already under pressure.

Six months into the conflict, uncertainty still dominates. The war continues to stoke global inflation, piling pressure on policymakers to hike borrowing costs, and global businesses have to grapple with the ongoing fallout. The drumbeat of headlines from Ukraine, traders say, is impossible to ignore.

“It is still a big factor,” David Coombs, head of multi-asset investment at Rathbones, told me. “It’s very much relevant at the moment, and unfortunately, it’s very difficult to see that changing.”

After a sharp summer rally, US stocks are just 2.3% lower than they were in late February. But the bleak mood continues to influence investing decisions. What happens next in the conflict could also factor into the Fed’s next steps, which remain a key determinant for the market’s trajectory.

Stocks of European companies, which are more directly exposed to the war and the energy crisis it sparked, are nearly 5% lower. They face a much grimmer outlook.

If the war were to end, Coombs said shares of European firms like Germany’s Siemens could experience a huge rally. But he expressed little optimism on that front.

“There is no end in sight. There is no obvious coming together of the two countries,” he said. “At the moment, you’re kind of factoring in that this war continues right through 2023.”

The long arm of the conflict isn’t just hanging over the global stock market.

Agricultural products. The cost of wheat has fallen back sharply after spiking to an all-time high in March, as investors cheered a deal brokered by the United Nations and Turkey to restart exports of grain from key Ukrainian ports.

But Tracey Allen, an agricultural commodities strategist at JPMorgan Chase, said that difficult logistics continue to limit shipments from Ukraine, and extreme weather could push up prices again in the coming months.

“The market really needs the grain volumes coming out of Ukraine, but it doesn’t appear we’re going to have any normalization in the export flow without a ceasefire,” she told me.

Energy prices. Global oil prices spiked as high as $139 per barrel in early March, but have dropped on growing fears of a recession that could hit demand for fuel. They’ve shed about 18% since the beginning of June.

Yet natural gas prices are soaring as Russia toys with supply to Europe via key pipelines and heat waves push up electricity usage. They hit a record in Europe this week and a 14-year high in the United States. Industry is being hit and consumers face a desperate winter.

Currencies. The euro hit a two-decade low this week on fears that an energy-strapped Europe could fall into a tough recession. Last month, it reached parity with the rallying US dollar for the first time since 2002.

The strong dollar, which gains ground when investors are stressed and want to park their money somewhere safe, could put emerging markets which pay for imports in dollars at risk. It could ding more developed economies, too.

“A sustained rebound in most [major] currencies against the greenback seems unlikely to us at this stage,” ING strategists said in a note this week.

Twitter whistleblower report grabs Washington’s attention

The allegations made by Peiter “Mudge” Zatko, Twitter’s former security lead turned whistleblower, are explosive.

In a nearly 200-page disclosure sent last month to US lawmakers and regulators — which was exclusively reported by CNN Business and the Washington Post on Tuesday — Zatko claims that Twitter has major security problems.

The issues, he says, pose a threat to its own users’ personal information, to company shareholders, to national security and to democracy.

The complaint by Zatko, who was fired by Twitter in January for what the company claims was poor performance, is already making a splash in Washington.

“If these claims are accurate, they may show dangerous data privacy & security risks for Twitter users around the world,” Sen. Dick Durbin, chair of the Senate Judiciary Committee, said on Twitter. “I will continue investigating this issue and take further steps as needed to get to the bottom of these alarming allegations.”

That could add to headaches for a company that’s already in crisis mode as it heads to court against Elon Musk, who agreed to buy the company and now wants to back out of the $44 billion deal. Twitter’s shares fell more than 7% on Tuesday.

Remember: Bots are central to Musk’s argument that he should be able to get out of buying Twitter. He’s claimed the company might be significantly under-reporting the number of spam and fake accounts. Twitter has said this is just cover for buyer’s remorse amid a market downturn.

Zatko’s complaint could bolster Musk’s position. Zatko alleges that Twitter has neither the incentive nor the resources to measure the full scope of bots on its platform, and that the company has made “material misrepresentations and omissions” about security and privacy issues for years.

This discount chain is hurting as shoppers pull back

As shoppers spend more on food and energy, they’re doling out less on new clothing and non-essentials — and even discount chains are taking a hit.

Nordstrom lowered its financial outlook for the year on Tuesday, pointing to a drop in traffic and demand at its Nordstrom Rack locations, which sell items at lower price points.

“The uncertainty moving forward is significant,” CEO Erik Nordstrom told analysts, noting that the drop-off was most pronounced among Nordstrom Rack’s lowest income customers.

Shares are down 13% in premarket trading on Wednesday. Macy’s also said Tuesday that budget-conscious customers are limiting spending, while the more affluent were still spending freely.

My thought bubble: Stores like Nordstrom Rack are in a tough position. Shoppers less affected by inflation are more likely to shop at a traditional Nordstrom store or Bloomingdale’s. And even though Rack offers big markdowns, many items still aren’t cheap. That leaves it in retail “no man’s land” as spending habits change.

Nordstrom knows this. But instead of ramping up efforts to court lower-income shoppers, it plans to make Rack a bit more luxe by adding premium items to its shelves.

“We are shifting away from the lower price point items that have not resonated with Rack customers,” Nordstrom said. “We believe that increasing the penetration of top brands at the Rack will differentiate our offer.”

Up next

Petco reports results before US markets open. Nvidia, Salesforce, Snowflake and Victoria’s Secret follow after the close.

Also today: Durable goods orders for July arrive at 8:30 a.m. ET.

Coming tomorrow: The first estimate of US GDP for the April-to-June period showed a 0.9% contraction in output on an annual basis. Economists expect that number will be revised to 0.8% on Thursday.

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