The geopolitical tension that is escalating in Ukraine recalls the worst moments of the Cold War, when the risk of an open conflict on a global scale – and a nuclear war – depended on taking a step that the opposing side interpreted as inadmissible. Today, the great powers of the planet have other names, but their interests, based on the predominance of influence and control of raw materials, are once again palpable on the border between Russia and Ukraine.
Although a priori the most plausible scenario is that this tension between the NATO allies – led by the US – and Russia translates, at most, into the measures to which we are already accustomed – such as diplomatic decisions, blockades or embargoes trade- the truth is that the markets have suffered since the conflict began, although the pandemic, inflation and upcoming decisions by the US Federal Reserve remain the main drivers of investor decision-making. Investors who should look at the 3,800 of the EuroStoxx and the 8,000 points of the Ibex 35 as the key levels in this crisis.
As an example, from October 16 to 28, 1962 -the duration of the Cuban missile crisis- the S&P 500 fell by 4.77% compared to the almost 8% that this index has yielded since the Secretary General of NATO warned on January 10 that the risk of conflict “is real”. Thus, the situation on the Ukrainian border with the aforementioned effects has caused the S&P to correct more than 10% from its maximum at the beginning of the year.
The day of this Monday has been the worst session in the markets for the Ibex 35 and the EuroStoxx since the emergence of omicron in Europe on October 26, yielding 3.1% and 4.1%. The Ecotrader analyst, Joan Cabrero, estimates that in a scenario in which the tension is maintained or grows (without reaching an open conflict between Russia and its allies with the members of NATO) the EuroStoxx 50 could fall between 6% and 4% to its support at 3,800 and 3,900 points.
For his part the Ibex 35 would have 5.2% of fall from its current levels to 8,000 points, which “would be an attractive buying area in the long term” without this implying talk of a bearish environment, according to Cabrero.
Given that the uncertainty surrounding interest rate hikes by the Fed has hit Wall Street indices more, the scenario that opens up for the Nasdaq, at its lowest since June last year, is more pessimistic. The selective of the technology companies of the United States faces a drop of 10% until its support at 13,000 points.
worst case scenario
The Bankinter analysis department proposes three scenarios in relation to the outcome of the conflict in Ukraine. The first, the most optimistic, would involve resolution through diplomacy and the markets would take the news with rebound of the main stock markets European, in his opinion. The second, which Bankinter has defined as “light invasion” would bring consequences in the markets “as long as the conflict was underway”.
For the worst case scenario, which would involve an act of war and NATO’s response, the research firm estimates that the Fed would “likely postpone any tightening of its policies (tapering slower or rate hikes later)”.
Once again, it is insisted that an armed conflict is the least likely scenario, as pointed out by the highest representative of the European Union for Foreign Affairs and Security Policy, Josep Borrel, who asks “don’t dramatize” with the news arriving from Ukraine.
However, the outbreak of an armed conflict in Eastern Europe could force the main European stock markets to fall back to the levels prior to the start of the coronavirus vaccine at the end of 2020, from the technical point of view of analyst Joan Cabrero. The EuroStoxx would find its support at 3,000 or 3,100 points while those of the Ibex 35 would be at 6,500, which would mean giving up 22% from what was registered at the close of this Monday.
Something that most analyzes agree on is that technology companies would once again be the most affected. Thus, the Nasdaq would be exposed to drops of 20% “to 10,600-11,000 points in case we face the worst case scenario, which would imply correcting 61% of the entire rise since the lows of March 2020 due to the coronavirus”, points out the Ecotrader analyst.
Europe risks 35% of gas supply due to tension with Ukraine
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