Company / Analytics

Analytics, 24 February 2022

Markets react to Russia-Ukraine Conflict

Oil prices rose above $100 a barrel for the first time since 2014, and natural gas prices surged Thursday after Russia launched an invasion of Ukraine. Russia, which is the world’s number-three oil and gas producer and supplies 40% of Europe’s gas, will likely face restrictions on its ability to produce and export fossil fuels due to sanctions on its banks and pipelines.

Meanwhile, global markets plunged, with the Dow and S&P 500 futures dropping more than 2% each. Nasdaq futures sank nearly 3%. Losses of this magnitude at the open would put the Nasdaq in a bear market, as defined by declines of 20% or more from recent highs.

Investors sought the perceived safety of bonds, pushing prices higher and yields lower Thursday. The benchmark 10-year Treasury yield fell to 1.89%. Almost every asset class has seen a sharp increase in volatility following recent developments in Russian aggression towards Ukraine.

Investors have been grappling with the prospect of imminent policy tightening by the U.S. Federal Reserve to combat surging inflation. The question now is whether the conflict will give central bankers a reason to delay those moves or whether the further rise in energy prices could spur them on.

The economic damage from supply disruptions and economic sanctions would be severe in some countries and industries and unnoticed in others.

Markets tumble after Russia’s invasion of Ukraine

Markets displayed all the predictable reactions. Europe’s stock markets tumbled nearly 4% in frenzied selling and Wall Street opened down 2.5%, while some traders described Russian and Ukraine markets as “untradeable” due to the sheer scale of the falls and Russia and Kyiv’s central banks tried to step in. Germany’s DAX fell 5%, bearing the brunt of the sell-off due to heavy reliance on Russian energy supplies and the amounts its companies sell to Russia. The surge in oil prices helped limit losses on Britain’s commodity-heavy FTSE 100, although it still slumped 3.3%.

The Dow and S&P 500 futures dropped more than 2% each. Nasdaq futures sank nearly 3%. Losses of this magnitude at the open would put the Nasdaq in a bear market, as defined by declines of 20% or more from recent highs. Wall Street’s early flop also meant the tech-heavy Nasdaq was shoved firmly into “bear” market territory as it tumbled 3.5% in early trading.

Investors sought the perceived safety of bonds, pushing prices higher and yields lower Thursday. The benchmark 10-year Treasury yield fell to 1.89%. The scramble for safety saw top-rated government bonds rally strongly along with other traditional storm shelters such as the dollar, Swiss franc, Japanese yen and gold.

The Moscow Exchange suspended trading on all markets, saying the exchange will announce the resumption of trading at a later date.

Oil Price surges above US$ 100

U.S. crude and international oil prices spiked Thursday, both topping $100 per barrel for the first time since 2014. Shares of American oil companies, including Chevron and Exxon Mobil, were among the beneficiaries in premarket trading. The oil price, already about $10 higher than it would be without the conflict, is likely to rise by another $10 this quarter as the situation escalates, JPMorgan analysts predict.

The reason for the surge in energy prices: Russia is a major global producer of oil and natural gas, which surged 6% on Thursday. Russia is such a dominant player in global energy markets that there’s no way to completely fill the gap it leaves behind. Nearly 40% of the European Union’s natural gas and 26% of its crude oil comes from Russia.

Any long-term spike in energy prices could exacerbate soaring inflation in the U.S. and complicate the Federal Reserve’s path for multiple interest rate increases this year. On one hand, central bankers need to weigh the possibly of even stronger price pressures — which could argue for more aggressive hikes — against a knock on the economy and markets — which could argue for a more gradual tightening.

Gold jumps to over one-year highs

Gold surged more than 3% on Thursday to more than $1,970 per ounce, the highest prices in over a year. Like bonds, gold is seen a haven in times of geopolitical turmoil.

Gold was trading at $1,953.16 per troy ounce at 2:20 p.m. in London, up 2.4% on the previous day. Earlier in the morning the precious metal was trading at $1,968.01 per ounce, up 3.17% and the highest since late 2020, as investors piled into safe-haven assets and equity markets globally tumbled into the red. Oil and soft commodity prices were sharply higher. Brent crude surpassed $100 for the first time since 2014.

U.S. gold futures were up 2.48% at $1,957.80 per ounce. Silver, platinum, palladium and copper were also all higher, with palladium seeing the highest hike of more than 9%. Silver was up 3.43% at $25.39 per ounce.

Bitcoin drops to one-month lows

Bitcoin, viewed in crypto circles as a store of value like gold, plunged roughly 7% on Thursday to a one-month low of around $35,100.

The world’s biggest digital currency has been trading more like a tech stock recently, now down about 50% from all-time highs of roughly $69,000 in early November. More than $150 billion has been wiped off the entire crypto market in the last 24 hours, according to CoinMarketCap data.

In the major FX markets, the dollar was up 0.5% against a basket of other top currencies. Almost every asset class has seen a sharp increase in volatility amid the deepening crisis. The Cboe Volatility Index, known as Wall Street’s “fear gauge”, is up more than 55% over the past nine days.

The rouble tumbled to an all-time low against the dollar and euro in highly volatile trading after Putin ordered Russian forces to invade Ukraine. Russia’s invasion saw investors scrambling for the safety of gold and the protection of inflation hedges.

Market Outlook

The Russian invasion of Ukraine has caused turmoil on the ground, and in financial markets. It triggered a sell-off in global stock markets. Prices for oil and natural gas and other commodities such as wheat, along with gold, palladium and other precious metals have surged, as investors fear supply disruptions.

The economic damage from supply disruptions and economic sanctions would be severe in some countries and industries and unnoticed in others.

Investors have been grappling with the prospect of imminent policy tightening by the U.S. Federal Reserve aimed at combating surging inflation. The question now is whether the conflict will give central bankers a reason to delay those moves or whether the further rise in energy prices could spur them on. While expectations of an aggressive 50-basis-point hike at the Fed’s March meeting have eased, Fed funds futures continue to point to at least six rate hikes this year.

Markets are now more adequately pricing in the risk of something horrific happening. That, combined with the uncertainty, is a dreadful environment to be in. No one wants risk exposure when that’s floating around.

Choose one or several trading platforms and achieve your goals with Investors Europe

Investors Europe (Mauritius) Limited is authorised and regulated by the FSC Mauritius, license C112011088. Registered address: 3rd Floor Ebene House, Hotel Avenue,33 Cybercity, Ebene 72201, Republic of Mauritius. Registered Number: 113933.

Any information contained on this website is provided to you for informational purposes only and should not be regarded as an offer or solicitation of an offer to buy or sell any investments or related services that may be referenced here. Investing in certain instruments, including stocks, options, futures, foreign currencies, and bonds involve a high level of risk. Trading on margin comes with substantial risk as well. You must be aware of these risks before opening an account to trade. The income you may get from online investing may go down as well as up.