Military action has increased market volatility and negative risk from inflation
Russia has launched several attacks on cities in Ukraine, realising the world’s worst fears, and creating turmoil in money markets as inflation risks intensify.
Hopes that a last-minute diplomatic solution could be found were smashed as Russian forces opened fire in what its president claims is a bid to “demilitarize” Ukraine.
President Putin’s action has been condemned as a “dark day” for Europe by German chancellor Olaf Scholz who added that the action by Russia was a “blatant violation of international law.”
Ukraine’s president Volodymyr Zelenskiy has placed his country under martial law and the country’s foreign minister tweeted that this was “a full-scale attack from multiple directions.”
Latest update.
— Dmytro Kuleba (@DmytroKuleba) February 24, 2022
No, this is not a Russian invasion only in the east of Ukraine, but a full-scale attack from multiple directions.
No, the Ukrainian defense has not collapsed. Ukrainian army took the fight. Ukraine stands with both feet on the ground & continues to defend itself.
“The United States and its allies and partners will respond in a united and decisive way,” Joe Biden warned.
Justin Trudeau tweeted to condemn the attacks and said that it was a “clear further violation of Ukraine’s sovereignty and territorial integrity” and breached international law and the UN charter.
Canada condemns – in the strongest possible terms – Russia’s egregious attack on Ukraine. These unprovoked actions are a clear further violation of Ukraine’s sovereignty and territorial integrity, and of Russia’s obligations under international law and the Charter of the UN.
— Justin Trudeau (@JustinTrudeau) February 24, 2022
Markets react
World money markets have reacted with equities falling and gold rising to its highest value in more than a year.
The ongoing global concerns around inflation have worsened as oil surged past $100, adding pressure to energy, manufacturing, and consumer prices, while other commodities futures are at a premium.
Russian stocks lost as much as $259 billion in value and the ruble fell to a record low with the country’s central bank saying it would take action to calm volatility.
The heightened geopolitical tension has also derailed Europe’s IPO market plans with issuers fearful of weak demand in the region until things calm down.
“Timing is everything for an IPO,” Susannah Streeter, analyst at Hargreaves Lansdown Plc told Bloomberg. “Given the invasion in Ukraine has added to fuel to the volatility we have seen on financial markets since the start of the year, plans for fresh offerings are likely to be shelved until calm returns.”
Nasdaq bear market
The geopolitical risks creating increasingly difficult choices for investors look set to push the Nasdaq 100 to a bear market for the first time.
Futures tracking the index – which includes big tech such as Apple and Amazon - were down 3% for March. Even before the latest development in Ukraine, there were concerns of overvaluation in the technology sector.
“Growth stocks had gotten incredibly loved and overvalued,” Eric Diton, president and managing director of The Wealth Alliance, told Bloomberg. “There was a feeling of intense speculation like with the tech bubble.”
