Markets in turmoil as Russia launches an attack
What has been classified as a diplomatic crisis over the past several weeks has turned into a military conflict as Russia’s President Vladimir Putin announced an attack on Ukraine earlier today. The worst-case scenario of the Russian invasion of Ukraine is now unavoidable, with reports of explosions hitting Kyiv and other cities around the capital.
The attack sent global stocks tumbling, with the Asian market in red and futures indicating a sharply lower open for US and European stocks. US bond yields dived as investors rushed towards safety, with 10-year yields falling ten basis points. Meanwhile, Brent crude marched to a new seven-year high above $102, and gold broke above May’s 2021 resistance level to trade above $1,940.
Russia’s launched attack on Ukraine appears much more aggressive action than markets have feared. Until early yesterday investors believed that the conflict was coming closer to an end after Russia recognized Ukraine’s separatist Donetsk and Luhansk People’s Republics and the West imposed sanctions. However, it seems there’s much more risk to be priced into asset classes, especially since there will be many unknown consequences not just in Russia and Ukraine but all over the globe.
People already feel the inflation pain at the gas stations, food prices, and day-to-day purchases. This pain will only intensify over the upcoming days and weeks, and the consequences on the global economy are hard to quantify at this stage. Investors who tend to buy the dips will not have the courage to do so in such times, as many others are trying to exit risk assets at once. So, expect to see a sea of red in today’s European and US trading sessions.
Oil’s surge above $100 does not only fuels inflation, but it would further dent growth prospects, especially as central banks around the world have just begun their monetary tightening cycles. Given the ongoing crisis in Ukraine, the crude price may not have a ceiling. It all depends on how long this war lasts and the type of sanctions to further hit Russia. The longer this conflict stays, the bigger the recession risk becomes. So get ready for more madness in financial markets.