Financial markets are on a war footing.
Russian President Vladimir Putin has taken Europe to the brink of conflict, deploying troops to two Moscow-backed separatist regions in eastern Ukraine late Monday. Just hours earlier, Russia formally recognized the regions’ independence.
Russia called it a peacekeeping mission. The U.S. described that as “nonsense,” while U.K. minister Sajid Javid said “the invasion of Ukraine has begun.”
It’s safe to say markets weren’t buying it either. U.S. stock futures pointed lower, led by Nasdaq futures as the miserable start to 2022 looked set to get even worse. The MOEX, Russia’s benchmark stock index, has taken a hammering, plunging more than 20% in the past five days.
Unsurprisingly, oil prices surged, with Brent crude futures topping $99 a barrel and West Texas Intermediate futures rising above $95 at one point, as traders feared the crisis would disrupt supplies.
The $100 a barrel milestone is within touching distance but as Western leaders begin to impose sanctions on Russia, oil could conceivably climb much higher in the coming days.
Developments over the past 24 hours have dashed hopes of a diplomatic resolution, leaving markets to fear the worst.
But just how bad could it be?
Goldman Sachs analysts said an outright conflict with punitive sanctions could send the S&P 500 6% lower and the Nasdaq 10% lower from Friday’s close. That is based on recent market moves in relation to the ruble and calculations that the currency is still 10% off its maximum undervaluation level of the past two decades.
Their worst case scenario would see WTI climb 13% and the yield on the 10-year Treasury fall 27 basis points.
It’s worth noting how difficult it is to predict geopolitical-led market shifts. But markets are certainly unsettled.