U.S. markets were closed for Presidents' Day on Monday, but intensifying tensions between the West and Russia was on full display in the global markets. Russia's benchmark stock index, the MOEX, plunged 10.5% for its largest daily percentage decline since the invasion of Crimea in 2014, while the pan-continental Stoxx Europe 600 slid 1.3%. Jitters are also showing up in America, with futures contracts tied to the Dow and S&P 500 slipping 1.3% and 1.5% early on Tuesday, while the Nasdaq fell back 2.2%.
Analyst commentary: "A limited invasion of Donbas would be a temporary headwind on risk assets, but we would not view that as a bearish gamechanger unless it spiraled into a broader conflict between Russia and the NATO [which again is unlikely at this point]," Kinsale Trading wrote in a research note. In Goldman Sach's worst case scenario, a 10% decline in the Russian ruble would push the S&P 500 down another 6% compared to Friday's close, with several more percentage points of weakness seen in Europe. Deutsche Bank also pointed out that typical geopolitical selloffs are usually around 6%-8% on average, taking three weeks for stocks to bottom and another three for them to recover.
Elsewhere, the energy sector is on watch, with Russia supplying about 40% of the EU's natural gas supplies via pipeline. Dutch gas futures, a European benchmark, surged as much as 13% to €82 a megawatt-hour, while natural gas futures (NG1:COM) in the U.S. traded up 6% at $4.72/mmbtu. Moscow is also a key oil player, producing roughly 11% of the world's supply (or 10.5M barrels per day), sending WTI crude futures (CL1:COM) up 3.7% to $94.46/bbl in response to the developments. "We could see prices surpass the $100-a-barrel mark very quickly and it even has an upside of $10 a barrel if we start seeing most sanctions being placed on Russian oil exports," said Sri Paravaikkarasu, Asia oil lead at FGE.
Other commodities were also affected, with Russia (and Ukraine) being a major supplier of metal and grain. Aluminum closed in on an all-time record, rising as much as 1.9% to $3,342 a ton on the London Metal Exchange, while Chicago wheat futures (W_1:COM) jumped to a near one-month high as trading resumed after Presidents' Day. Together, Russia and Ukraine account for a quarter of global trade in the grain, and concerns about Black Sea shipment disruptions could send soaring food costs even higher.
Eye on safe-havens: The uncertainty led investors to seek the relative safety of sovereign bonds, with the yield on the benchmark 10-year Treasury sliding as much as 7 basis points to 1.846%. Bullion also caught a bid as gold touched an eight-month high at $1914.40 an ounce. Interestingly enough, cryptocurrencies (the new age safe-haven touted by crypto believers) took a hit on the news, suggesting it is still trading in line with the riskiest of assets. At the time of writing, Bitcoin (BTC-USD) - referred to by some as digital gold - slumped 6.6% to $36,808.
Comments