Markets plunge: Putin launches invasion of Ukraine

The worst case scenario is confirmed. The President of Russia, Vladimir Putin, has begun the invasion of the Ukrainian region of Donbass this morning and, in addition to the battle on the ground, has declared war on the West. While waiting to know what the international response will be like, investors are running in search of refuge in the midst of an ‘economic shock’. Stock markets around the world fall, while oil, gold and bonds soar, with their prices rising and their yields falling.

The European stock markets are trading with declines that have come close to a whopping 5%, although as the session progresses the punishment is less. The German ACC bears the brunt as one of Russia’s largest European partners. Asian stock markets did not escape falls either. The Chinese of Hong Kong and Shanghai have come to leave more than 3%, while the Nikkei of Tokyo and the Kospi gave up around 2%. “Investor sentiment is in the fear zone,” says Javier Molina, an expert at eToro.

However, the worst part has been taken by those involved. The Russian Moex stock index, which has suspended all negotiations for much of the day, has returned to activity with a collapse that has reached 40%.

In the forex market, the Russian ruble and the Ukrainian hryvnia remain the two worst performing currencies globally this year. In fact, the ruble is already at the low of 2016 when it crosses the dollar. The Russian central bank has already announced that it is prepared to intervene.

Opposite path take the Petroleum, with increases of around 5%. The barrel of Brent, a reference in Europe, exceeds 100 dollars for the first time since 2014, while that of West Texas, a reference in the US, moves above 97 dollars.

Gas also shows advances of 24% and gold, a refuge par excellence, rises around 1.5% and hits highs from early 2021, while aluminum appreciates about 3%, to $3,388 a ton in the London Metal Exchange, and is already above its 2008 highs.

As for money, it also runs to seek refuge in the debt market and the yields of the bonds in the Eurozone they fall in a general way, with the Spanish ten-year interest again below 1.2%, and that of Germany at 0.15%, as the one that narrows the most, up to about 10 points (purchases raise the price and lower profitability). These falls in yields mean that Spain’s spread or risk premium clearly exceeds 100 basis points.

Also noteworthy are the setbacks in the cryptocurrencies. Bitcoin drops almost 9% to $34,800 per unit, while the correction in ethereum deepens to 12%. Cryptocurrencies once again demonstrate that they have little or nothing to do with a haven asset.

In addition to the direct impact on the markets, the repercussion that the war in Ukraine can collide with economic recovery launched after the pandemic. According to Juan J. Fdez-Figares, from Link Analysis, the impact on the energy market and, consequently, on the rise in prices, is another scenario to analyze because it can lead the markets to have to face a scenario low growth and high inflation.

The air bases, the first objective

Putin’s order to launch a military operation in Donbass, the critical area that includes the Donetsk and Lugansk regions, transforms geopolitical tensions into practically the start of a war. During the early morning several explosions have taken place in different cities of Ukraine after Russian troops have landed in Odessa. Specifically, the advisor to the Ukrainian Interior Minister, Anton Gerashchenko, has indicated to local media that “missile attacks have been carried out on several military installations in the capital, Kiev, in Kharkiv and in Dniproa Russian landing party has landed in Odessa and Russian troops have crossed the border near Kharkov.”

As reported by the Russian Armed Forces, and collected by the agency Interfax, Russia reportedly “neutralized” Ukraine’s airbases at the start of the operation.

Putin’s order means the greatest challenge to the west since the tensions began. US President Joe Biden has condemned the “unprovoked and unjustified” attack by Russia and stressed that partners and allies “will respond in a united and decisive manner”. According to a statement from the White House, “President Putin has chosen a premeditated war that will bring catastrophic loss of life and human suffering. Only Russia is responsible for the death and destruction that this attack will bring.”

Three urgent meetings and more sanctions against Russia

Biden will meet with his counterparts from the G7 this Thursday morning and will speak to the American people “to announce the additional consequences” that the US and NATO allies will impose on Russia for “this unnecessary act of aggression against Ukraine.”

Russia faces a mounting sanctions list against the backdrop of international condemnation. Yesterday, Brussels yesterday approved a battery of economic punishments after Putin recognized the independence of Donetsk and Lugansk (the step prior to today’s attack). The Twenty-Seven gave the definitive approval to apply the first measures against 351 members of the Duma and 27 political leaders, military commanders and entities involved in the maneuver in Donbass “that undermines the sovereignty and territorial integrity of Ukraine”.

The restrictions imposed so far limit Russia’s access to the EU capital market, the trade of the two rebel provinces and will affect Russian banks that finance the Army, such as Rossiya, Promsvyazbank and VEB-bank. In addition, on Tuesday Germany announced the suspension of the start-up of Nord Stream 2, the mega-oil pipeline that was called to transport gas from Russia to German lands. This is, however, a double edged punishment as it further fuels the rise in gas prices in Europe.

In order to establish positions and define the sanctions, the leaders of the European Union have meeting today in brussels in an extraordinary summit to deal with the crisis. Before the meeting, the president of the European Council, Charles Michel, and the president of the European Commission, Ursula von der Leyen, have published a statement in which they “call on Russia to immediately cease hostilities, withdraw its Army of Ukraine and fully respect the territorial integrity, sovereignty and independence of Ukraine”. In a subsequent statement, von der Leyen warned that the EU will impose “massive” sanctions against Russia: “Putin will pay for the aggression against Ukraine”, he has indicated.

Today will also be seen in an emergency meeting the UN Security Council, who called the appointment yesterday with the intention of demanding peace before the scenario changed completely.