The markets do not like uncertainty so a catalyst like an invasion could see the benchmark indices a lot lower today as the markets go risk-off. If there is an escalation of fighting the euro and European companies will suffer alongside the Russians, with the yen and other safe havens will benefit.
Considering it wasn't a full hostile take-over with shots fired, we may wish to be thankful that Russian President Putin used the UN Peacekeeping mission to control separatist areas in Ukraine. Russia is now able to move military hardware into the cities of Crimea, Donetsk, and Luhansk following the recognition of Crimea and parts of Donetsk and Luhansk. This violates international law and violates Ukraine's sovereignty and territorial integrity, so the United States will impose sanctions on Russia. Other countries will also impose sanctions on Russia with Japan stating they are ready to do sanctions if there is an escalation of conflict. The Ukrainian President is now calling on the world to help him regain those regions and to push Russia back.
Russia has a 30% market share of natural gas in Europe, so we can expect to have higher fuel prices and higher inflation for some time to come, regardless of whether the central banks keep raising rates. The US is trying to coordinate gas supplies from around the globe to be diverted and stored for the European markets but there will be a shortfall.
The natural gas contract for April is still within a previous trading range and support is around 4.200 and the 200-period moving average. I am expecting the momentum to rising and for this price action to breakout to the upside.
Oil is now pushing higher, and the Brent spot price is trading above $95 and on its way to $100 per barrel. As gas prices rise energy users will switch to oil but if they both rise exponentially over the coming weeks it is going to be hard for central banks to do anything about inflation.
The Russian rouble lost over 3% yesterday against the US dollar and the Russian benchmark index is down -19% for the week as Russian companies will suffer greatly under the new sanctions.
But the decline in equities isn’t just confined to Russia. Over the Asia-Pac session the Hang Seng was down -2.68%, the Nikkei ended -1.75% lower and the Shanghai Stock Exchange closed nearly -1% lower. At the London open the UK FTSE100 was already -0.38% lower and clearly heading towards the daily 200-period EMA.
The euro is also likely to come under increasing pressure as the Russians have started their invasion of Ukraine. The markets don’t like uncertainty and now that the Russian military is moving across someone else’s borders anything could happen. If there is conflict on European soil the flows will be from the euro into the safe haven of the yen or Swiss franc, though currently, we’re seeing relative strength in the commodity pairs too.
Later this afternoon the US Flash Manufacturing and Services PMI along with Consumer Confidence will be overshadowed, but they could be marketing moving for the US dollar at their release.