Oil tops $100 after Russia invades Ukraine
February 24, 2022 11:31:44 p.m.
Oil prices rose above $100 a barrel for the first time since 2014, stock markets crashed globally and the ruble hit a record high on Thursday after Russian President Vladimir Putin launched an invasion of Ukraine.
The markets showed all the predictable reactions. European stock markets fell nearly 4.0% in frantic selling and Wall Street opened down 2.5%, while some traders described the Russian and Ukrainian markets as “non-tradable” due to the magnitude of the falls and the central banks of Russia and Kiev tried to intervene. .
The rush to safety saw top-rated government bonds rally strongly along with other traditional storm shelters such as the dollar, Swiss franc, Japanese yen and gold, Reuters reports.
Putin said he had authorized what he called a “special military operation” across Ukraine. Western governments called it a full-scale invasion.
US President Joe Biden said “severe sanctions” would be imposed on Russia after the attacks, with European leaders also pledging to freeze assets and exclude Russian banks from their financial markets.
“No one expected this and speculation about Putin’s next step will be the focus of the coming days,” said Hans Peterson, global head of asset allocation at SEB Investment Management.
“But this is happening in a phase of the economic cycle which is quite strong,” he added, saying the current rise in energy and commodity prices is also crucial.
Chaotic moves in Russian markets saw the ruble weaken by nearly 7.0% to an all-time high of 86.98 to the dollar and there were record falls of 40% on the Moscow stock exchange , which had been forced to suspend its transactions from the start.
Meanwhile, Ukraine was forced to suspend trading in its currency as its bonds slumped violently as investors bet it could default again, as it did following the annexation of Crimea by Russia in 2014.
“It’s total chaos,” said abrn portfolio manager Viktor Szabo. “Ukraine is not tradable right now and it’s carnage in Russian markets across sovereign and corporate debt.”
Missiles rained down on Ukrainian cities, and Ukrainian authorities reported columns of troops crossing its borders from Russia and Belarus and landing on the coast from the Black and Azov seas.
The assault brought a calamitous end to weeks of failed diplomatic efforts by Western leaders to avert war, with their worst fears about Russian President Vladimir Putin’s ambitions coming true.
The rout in global equities began with a 2.6% drop in pan-Asian indices. Europe’s STOXX 600 index then fell 4.0% to its lowest since May 2021 and Wall Street’s S&P 500 and Dow Jones indices opened 2.5% lower.
Germany’s DAX fell 5.0%, bearing the brunt of the selloff due to heavy reliance on Russian energy supplies and the quantities its companies sell to Russia. Soaring oil prices helped limit losses on Britain’s commodity-heavy FTSE 100, although it still fell 3.3%.
Wall Street’s early flop also meant the tech-heavy Nasdaq was pushed firmly into “bear” market territory as it fell 3.5% in early trading.
“In the past when you’ve had geopolitical flare-ups, you tend to have very volatile periods in the markets and then normalization, but it’s hard to gauge when we’ll have that,” the LGIM portfolio manager said. , Justin Onuekwusi.
THE COST OF CONFLICT
In major foreign exchange markets, the dollar rose 0.5% against a basket of other major currencies. Almost all asset classes saw a sharp increase in volatility amid the deepening crisis. The Cboe Volatility Index, known as Wall Street’s “fear gauge,” has risen more than 55% in the past nine days.
Fears that Russia is now squeezing global energy markets saw Brent crude futures jump more than 8.0% above $100 a barrel for the first time since September 2014. Nearly 40 % of the European Union’s natural gas and 26% of its crude oil come from Russia.
With Ukraine and Russia also major agricultural producers, wheat and corn prices jumped more than 5.0%, while gold jumped more than 1.7% to its all-time high since early January 2021.
The dive for safety also saw yields on AAA-rated German government bonds fall 10 basis points to 1.119%, the lowest in three weeks. . The benchmark US 10-year yield also fell sharply, falling to 1.85% from its US close of 1.977%.
Investors are also grappling with the prospect of impending policy tightening by the US Federal Reserve aimed at tackling soaring inflation. The question now is whether the conflict will give central bankers a reason to delay these moves or whether the renewed rise in energy prices could spur them.
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 the risk of something awful happening. That, combined with the uncertainty, is a horrible environment. Nobody wants to be exposed to risk when it’s floating,” said Rob Carnell, head of research for Asia-Pacific. at ING.