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War threat to gas prices as markets feel the pressure

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A militant of the self-proclaimed Luhansk People's Republic in the village of Zholobok in Luhansk, Ukraine. Photo: Reuters/Alexander Ermochenko

A militant of the self-proclaimed Luhansk People's Republic in the village of Zholobok in Luhansk, Ukraine. Photo: Reuters/Alexander Ermochenko

A militant of the self-proclaimed Luhansk People's Republic in the village of Zholobok in Luhansk, Ukraine. Photo: Reuters/Alexander Ermochenko

The Central Bank has warned gas prices could rise further in the event of a military conflict in Ukraine.

The warning of a direct economic hit here if tensions over Ukraine escalate came as financial markets in Dublin and internationally reel from the twin threats of war and inflation.

“Any invasion of Ukraine by Russia could lead to higher gas prices than that in futures markets,” said Mark Cassidy, the Central Bank’s director of economics and statistics, presenting its first quarterly economic bulletin of the year.

Easing of political tensions may lead to a reduction in gas futures prices and a more benign outcome, he said. 

Ireland is extremely dependent on what happens in international energy markets.

Around 50pc of Ireland’s gas is imported – via the UK – and gas currently supplies 30pc of the country’s total energy needs.

Meanwhile, Irish shares missed out on signs of recovery elsewhere in Europe yesterday, with Dublin ending the day trading unchanged after a dramatic plunge on Monday.

Investors are on tenterhooks as Russia and the US face off over Ukraine and as the US Fed seeks to calm inflation without choking the economy.

That earlier fall was driven by fears about the prospect of war in Ukraine and that soaring inflation could trigger the US central bank, the Federal Reserve, to act more aggressive on interest rates and other policy tightening actions when it meets today. 

Frantic trading on Monday had wiped €6bn off the valuations of Ireland’s Iseq 20 index of leading shares amid the worst sell-off in Europe since June 2020. 

In the US, Monday’s swings in share prices, first plunging and then bouncing back dramatically, were the most extreme since the Lehman Brother crisis in October 2008. 

Irish shares fell sharply on Monday too, but without the recovery, and by yesterday US stocks were also back in negative territory, with the exception of the energy sector.

David Bergin, a senior portfolio manager at Goodbody Stockbrokers, said volatility has become extreme as investors struggle with the uncertainty of moving from an environment heavily supported by liquidity from central banks to one where authorities are trying to dampen inflation. 

Some of the ‘froth’ of the excess cash linked to various Covid stimulus schemes is starting to exit the financial system, including in the US where an army of small, often first-time, retail investors opened online accounts during Covid and rode a rising market tide but are now getting particularly hard hit, he said.

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“We’re seeing really big falls in shares and the wider market can see these retail investors leaving and they are stepping back and letting those guys get beaten up and will only then come in to buy,” he said. 

The Fed meeting can help with that, he said. 

“People are struggling to get their heads around all of this so the Fed’s language on Wednesday will need to be really clear,” he said.

The general expectation on the market is that the US intends to raise interest rates three times this year, by a quarter of a percent each time, starting in March.

With inflation spiking, there are some fears in the market that a rate increase could be brought forward to this week and even include an initial 0.5pc hike, Mr Bergin said. 


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