How a Russian invasion of Ukraine could trigger market shock waves
The threat of a devastating European ground war hasn’t done much to rattle financial markets so far, but investors still appear likely to snap up traditional safe-haven assets should Russia attack Ukraine, market watchers said.
In that event, the “typical kind of conflict responses” would likely be in play, including moves into long-duration Treasurys, as well as a spike in prices for oil and European natural gas, Garrett DeSimone, head of quantitative research at OptionMetrics, told MarketWatch. Such moves would likely prove short-lived, he said.
Talks continue
Top U.S. and Russian diplomats met Friday in Geneva. The discussions appeared to make little progress, but saw officials pledge to continue talks in an effort to defuse the crisis.
Read: U.S. and Russia agree to continue talks aimed at defusing Ukraine standoff
Moscow has moved around 100,000 troops near Ukraine in response to what it says are threats to its security from the North Atlantic Treaty Organization and Western powers. The move has stoked fears of a Russian attack.
While a direct military response from the U.S. and its Western allies is seen as off the table, President Joe Biden has vowed hard-hitting sanctions. Russia, a key supplier of energy to Europe, is seen likely using those resources as leverage in response to Western sanctions.
Uncertainty around the response was heightened, however, after Biden, in a Wednesday news conference, said a “minor incursion” by Russia into Ukraine would prompt a fight between the U.S. and its allies over what actions to take. On Thursday, Biden moved to clarify his remarks, saying, “If any assembled Russian units move across the Ukrainian border, that is an invasion” and that if Russian President Vladimir Putin “makes this choice, Russia will pay a heavy price.”
All about energy
Russia’s annexation of Ukraine’s Crimean peninsula in 2014 created bouts of volatility, but nothing that knocked global markets out of their stride, noted Steve Barrow, head of G-10 strategy at Standard Bank, in a note. Investors, however, can’t count on a similarly subdued reaction in the event of a full-scale invasion, he said.
Russia’s role as a supplier of natural gas to Western Europe means that energy prices could spark bouts of volatility across other financial markets. A conflict between Russia and Ukraine would likely cause natural-gas prices to spike, even if its only a knee-jerk reaction, Barrow said.
Earlier: Russia-Ukraine tensions mean Europe’s natural-gas volatility unlikely to fade
“Presumably other energy prices would spike in tandem and this could unnerve financial asset prices in a way that proves far more significant that we saw in 2014,” he said. “Safe-haven demand would likely increase for assets such as Treasurys, the dollar, yen and the Swiss franc.”
Read: Tensions between Russia and Ukraine aren’t fully priced into commodities
Washington policy makers have signaled they would attempt to exempt…
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