Home ›› 25 Feb 2022 ›› Stock
Oil prices broke above $100 a barrel for the first time since 2014, stock markets slumped and the rouble hit a record low on Thursday after Russian President Vladimir Putin launched an invasion of Ukraine.
Markets displayed all the predictable reactions. Europe’s stock markets tumbled nearly 4 per cent in frenzied selling while top-rated government bonds, the dollar, Swiss franc, Japanese yen and gold all rallied as traders sought out safety.
Putin said he had authorised what he called a special military operation though Ukraine and Western governments labelled it a full-scale invasion.
US President Joe Biden said “severe sanctions” would be imposed on Russia after the attacks, with Europe’s leaders vowing to also freeze assets and shut Russian banks out of their financial markets.
Russian and Ukraine markets went in freefall.
The rouble weakened nearly 7 per cent to an unprecedented 86.98 per dollar, there were record 30 per cent falls on the Moscow stock exchange when it opened after an initial suspension, while Ukraine was forced to suspend trading in its currency as its bonds crashed violently.
“No one expected this and speculation of Putin’s next step will be the major focus of the coming days,” said Hans Peterson, global head of asset allocation at SEB investment management.
“But this does happen in a phase of the business cycle that is quite strong,” he added, saying how high energy and commodity prices now go is also crucial.
The equities rout had started with a 2.6 per cent dive for pan-Asian indexes. Europe’s STOXX 600 index then fell 3.9 per cent - hitting its lowest since May 2021 and more than 10 per cent away from a January record high.
The German DAX fell 4.7 per cent, bearing the brunt of the selloff 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 the UK’s commodity-heavy FTSE 100, although it still slumped 2.3 per cent and futures markets pointed to similar falls for Wall Street later.
S&P 500 e-minis were down over 2 per cent and Nasdaq futures were 2.9 per cent lower in premarket trading, which if it is reflected after the market opens, would confirm the tech-focused index has slumped into a so-called ‘bear’ market.
“In the past when you have had geopolitical flareups you tend to have a very volatile period on markets then normalisation, but it’s difficult to assess when we will get that,” said LGIM portfolio manager Justin Onuekwusi.
The cost of conflict
In the major FX markets, the dollar was up 0.5 per cent 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 per cent over the past nine days.
Fears Russia will now squeeze global energy markets saw Brent futures jump more than 8 per cent past $100 a barrel for the first time since September 2014.
