Fears of a Russian invasion of Ukraine are rising, prompting analysts and traders to weigh in on potential financial-market shock waves.
Spectra Markets president Brent Donnelly wrote in Friday’s note, referring to 10-year Treasury-note futures TY00, “if Russia attacks Ukraine, the trade buys TY.”
The Treasury is a traditional haven during periods of geopolitical and economic tension. A rally in Treasuries will reduce yields, which moves in the opposite direction of prices. A Treasury selloff increases the yield with the 10-year Treasury rate TMUBMUSD10Y,
Friday’s close of 1.76%, after hitting a nearly two-year high in the week.
The Swiss Franc, another popular haven, the Euro/Swiss Franc can also rally with the EURCHF,
The currency pair is likely to fall to CHF1.03 “if Russia moves on the frozen rope,” Donnelly said. The euro bought 1.0426 francs on Friday.
Russia, which has already deployed more than 100,000 troops to Ukraine’s border, began moving tanks, infantry fighting vehicles, rocket launchers and other military equipment west from its Far East bases this week. Gave. The Wall Street Journal reported, citing US officials and social media reports.
Russian President Vladimir Putin is seen using the threat of an invasion as leverage, as Moscow demands that NATO never offer membership to Ukraine or Georgia. Russia has pushed for a number of other demands, including the withdrawal of US and allied forces from eastern and central European members of NATO. This week’s talks between Russia, the US and NATO did not succeed. The US and its allies have vowed to respond to any Russian invasion of Ukraine with harsh economic sanctions.
Panic escalated on Friday after several Ukrainian government websites were temporarily unavailable following a cyberattack. Ukraine’s Foreign Ministry spokesman Oleg Nikolenko told the Associated Press it was too early to tell who was behind the attack, “but there is a long record of Russian cyber attacks against Ukraine in the past.”
The Russian invasion in 2014 and Ukraine’s annexation of the Crimean peninsula caused a stir in global markets, but as is often the case with geopolitical flare-ups, volatility soon subsided.
“In 2014, US equities had some meaningful downdrafts on Ukraine (March and May), but that quickly shook the story. I don’t think equities are a good way to play out this scenario,” Donnelly said.
When it comes to equities, it’s best not to sell out of panic that past geopolitical crises may have led to it, Marketwatch columnist Mark Hulbert wrote in September.
He cited data by Ned Davis Research examining the 28 worst political or economic crises in the six decades before the 9/11 attacks in 2001. In 19 cases, the Dow Jones Industrial Average (DJIA),
That was more than six months after the crisis began. The six-month average profit after all 28 crises was 2.3%. After 9/11, which closed the market for several days, the Dow fell 17.5% to its lows, but returned to trade above its September 10 level by October 26, six weeks later.
Donnelly said he tends to downplay market reactions because of political anger.
“Geopolitical issues are boiling all the time and if you look at history, very few geopolitical events affect the markets for more than a few days,” he said, but noted that there are exceptions – and when they Are, “It’s huge.”
US stocks were mostly lower on Friday, with the Dow Jones Industrial Average on track for a 1.1% weekly decline, the S&P 500 SPX,
Down 0.4% and Nasdaq Composite Comp,
0.9% off. Weakness in US equities in early 2022 has been largely attributed to a jump in Treasury yields, tied to rising inflationary pressures and expectations that the Federal Reserve will be able to raise rates and tighten policy much more than before. will be more aggressive.
VanEck Russia Exchange-Traded Fund RSX,
It is down 6.8% so far in January and has fallen more than a quarter from its more than nine-year high at the end of October. Russian Ruble USDRUB,
It is down more than 9% against the US Dollar on broadly the same stretch.
Baron’s: As Russia-Ukraine tensions heat up, Russian stocks may be too cheap to resist
Meanwhile, analysts say investors haven’t fully priced what the invasion will mean for commodities, especially natural gas NG00,
and corn C00,
Marketwatch’s Myra Saiphong wrote.
Europe relies heavily on Russian gas transit through Ukraine, and has begun with record-low European gas stocks, especially looking at 2022. An invasion is likely to block approval for the operation of the recently completed Nord Stream 2 pipeline, which is set to bring more natural gas directly into Germany, bypassing Ukraine.
With West Texas Intermediate crude CL00, oil futures halted for early 2022,
The US benchmark rose over 10% since the calendar flip, while global benchmark Brent crude BRN00,
has increased by more than 9%. Both are not trading far above the multi-year highs set in November.
Analysts at RBC Capital Markets wrote in a note on Thursday, “While the firming oil prices in the White House’s political red zone and the Russian invasion of Ukraine are still a major and central concern, the scramble for additional barrels is a bullish.” will become an essential priority.” ,