As one of the world’s major power blocs, the European Union group of 27 states imposed sanctions on Russian oil imports, we look at the reactions of economists and investment firms to the move .

This week, European Union leaders agreed to hit imports of Russian crude oil with an embargo – which will take full effect by the end of 2022. The sanctions are designed to prevent 90% of Russian crude oil from be imported into the EU. However, there are partial exemptions for Hungary and other central European states that depend on pipeline imports.

As well as trying to pressure Russia as it continues to invade Ukraine, the measures will add pressure on European consumers, who are already paying more for gas and oil. Soaring energy prices have become a major political and economic issue. The impact of Russian sanctions also comes on top of disruption from lockdowns to contain Covid-19, anti-C02 energy policy and a decade of central bank money printing.

Here are some thoughts on EU actions in Europe and the rest of the world.

Capital saving
“We believe that at the margin, the EU embargo on Russian oil, announced yesterday [Tuesday]adds to the reasons to expect long-term government bond yields to rise, stocks to struggle and commodity-linked currencies to outperform over the remainder of this year.

EU countries have agreed to an embargo on maritime imports of petroleum and petroleum products from Russia (around 90% of total EU imports of these items come from Russia), with a temporary exception only for certain pipeline imports.

The price of Brent crude – which had already risen in recent months as Western countries increasingly cut imports of Russian oil – has risen since the announcement and is now trading at around $123 a barrel. Meanwhile, risk appetite generally appears to have deteriorated following the announcement. Stocks – which had rebounded over the past week – are down today as the US dollar strengthens.

We think so [the embargo] adds to the reason to expect oil prices to remain elevated for the rest of the year, although they could pull back slightly from recent highs. We believe this has three implications for the global economy and financial markets in general.

First, we believe that inflation rates in major economies will remain high for some time, although they could ease slightly thanks to favorable base effects. We believe this will encourage central banks to continue monetary tightening, which we believe will put further upward pressure on government bond yields in general. We suspect that the high inflation footprints in the Eurozone…may have contributed to rising expectations for interest rates and bond yields in the region.

Second, we believe further upward pressure on bond yields will weigh on equity market valuations, providing another reason to suspect that equities will continue to struggle.”

Center for Economic and Business Research (CEBR)
“Eurozone inflation rose further to 8.1% in May, beating consensus expectations by 0.4 percentage points. rose the fastest, up 39.2% from May 2021. Food prices have also risen at worrying rates, with Ukraine’s agricultural export deficit threatening to further worsen the situation. While the EU has reached an agreement on new sanctions targeting Russian oil supplies, energy prices may well rise even faster in the coming months.These developments continue to put pressure on the Bank European powerhouse, which hinted that its first rate hikes in more than a decade would be possible during the summer months.”

Schröders
“We have revised our forecast for global inflation this year upwards to 6.4% from 4.8% previously. Although we still expect inflation to decline next year, it is likely to do so. more slowly and we have revised our forecast upwards to 3.6% cent in 2023 from 2.8% previously.

In this framework, a large part of the upward revision comes from developed markets. The data received suggests that inflation in the United States peaked at 8.6% in March. We expect it to trend lower in the coming months, but only to return to the Federal Reserve’s 2% target by the fourth quarter of 2023.

We expect the peak of inflation in the UK and the Eurozone to be a bit later, in Q2 and Q3 respectively. However, while we expect eurozone inflation to return to below 2% in the second half of next year, we expect UK inflation to remain above target throughout 2023. .

BlackRock Investment Institute
“Near-term risks appear biased to the downside for growth and risky assets: central banks are talking tough on inflation, a continued shock to commodity prices and China’s restrictive Covid lockdowns adding to headwinds. weaker macro outlook We believe the consequences of these risks will be most deeply felt by markets on a tactical horizon – and have reduced portfolio risk in recent weeks, but we believe they have yet to important for a strategic horizon of five years or more.

We maintain our view favoring developed market equities over fixed income over a strategic horizon. This challenging market and macroeconomic environment has highlighted the importance of considering time horizons when crafting investment prospects.”