A week is a long time in markets

This week has been a dramatic one in financial markets as global uncertainty and nerves played out against the escalating global conflict.

As I write on Friday morning, the FTSE 100

has steadied after a yo-yo week. For most investors, Wednesday was prime “wet yourself” day (to use a technical term), as markets slumped from when they opened on Monday. Japan’s Nikkei was down about 9%, Korea’s Kospi by about 18%, the German DAX by 6%, and the FTSE by about 4.5%. Things have broadly stabilised since, although most markets will probably end the week lower.

In a nutshell, energy prices remain high. My very old diesel car is going to cost more to fill up this weekend than it has for about a year. Oil prices have risen by about 15%. Airlines have been hammered. Global stock markets fell as the conflict developed. And perceived safe havens, including gold, silver, and the Swiss franc, did well.

The impact is not only on stock markets. Inflation is back on the worry list. When oil spikes, making things basically gets more expensive. As does getting around. So costs go up. If inflation stays higher for longer, so do interest rates. Central banks are going to think twice about cutting rates if inflation is stubbornly higher than they want. The Bank of England next meets on March 19th, and it’s less of a slam dunk conclusion that they will cut rates now. I suspect it’s unlikely.

KOSPI is Kreme’d

I’m gutted that my naughty side hustle, Korea’s Kospi Index (which in my head I call the Krispy Kreme Index), fell by about 12% in one day and slid by almost 20% over three days. That’s some negative sugar rush and broke a long trend of upward momentum. Yesterday it bounced back about 10%. This is a masterclass in the risks of more niche markets and how momentum is a powerful friend on the up and a cruel enemy when things head South.

Why was this hit so hard? A couple of things. South Korea is a big oil importer. But we’d also seen gains of about 40% this year alone on AI chip hype, so things were a) overcooked and b) anyone who had borrowed to buy in to this had to sell quickly to pay back their debts. When momentum breaks in a popular market or theme, it’s a bit like when the lights come on at the end of a 1980s disco after the slow dance. People blink, take profits, and head for the door en masse, suddenly feeling a lot less attractive than they did 10 minutes before.

I expect we will see bouncing around between profit taking and bargain hunting by the optimists over the coming weeks.

Stick or Twix?

No-one likes being an investor at times like this. It’s unnerving. However, I’ve seen the 2000 dot.com crash, the 2008 Crisis, the 2020 Covid shock, more recent AI wobbles, and now this – so I’m not unduly alarmed. From a purely financial perspective, this week’s volatility is unsettling, but nothing making me change course.

Over the Atlantic, the S&P 500 for now remains largely immune to the broader malaise and is only down about 1% this week. Technology continued to dominate, and investors are starting to get excited about the impending IPO of Space AI, as Musk flirts with the Milky Way.

The disruption will be widespread, deep, and ongoing. Beyond the more obvious oil price shocks, there’s an aluminium supply crunch, fertiliser shortages which will impact food production, and jet fuel price spikes. Wealthy Dubai residents currently in the UK will be panicking about their Bounty and allowable tax days here. We anticipate currency shifts and higher interest rates for longer. The list goes on.

But for most of us, we hold our nerve and don’t panic. I generally suggest that the best thing to do at such times is to lose your online trading password and ride things out.

On a final note, I’m always very conscious when I write about the financial implications of events such as this that there is a whole backdrop of human misery which will impact many of our readers. Thoughts with you and your families, wherever you are.

Have a lovely weekend, everyone.

Holly