Within a number of days, the Russia-Ukraine War has put significant pressure on global markets.
As EU leaders come together in a show of force against the war, financial sanctions have rocked Russia’s economy and threatened to further fuel worldwide inflation. These sanctions were however strategically designed to avoid disrupting essential energy exports from Russia, which Europe largely relies on to power their factories, heat homes and fill gas tanks, which cushioned the surge in energy prices but did not mitigate completely against increased volatility.
In terms of Stocks, European stocks continued their slump this week as Russian Markets remained isolated from the global economy. The Central Bank of Russia kept the local stock market closed for a second day after the U.S. barred transactions with it, and as a result, the central bank went on to lift interest rates to 20% from 9.5% this week.
The Stoxx Europe 600 ended just 0.1% lower on Monday despite heavier losses early in the day, and skidded 2.4% by the end of trading on Wednesday, while the German DAX and the French CAC 40 each fell nearly 4%. In stark contrast, the U.K FTSE helped limit the damage as it leans more towards commodity producers and only lost 1.7% by Wednesday.
While Wallstreet had its eyes firmly fixed on the negotiations between Russia and Ukraine, the U.S. stock indexes finished sharply higher on Wednesday, with gains gathering steam after Federal Reserve Chairman Jerome Powell outlined plans to begin dialling back the central bank’s easy-money stance to fight inflation while playing down the prospect of a larger-than-usual increase of benchmark rates in March. The central bank plans to raise its benchmark interest rate, currently in a range between 0% and 0.25%, at its meeting in two weeks. Powell said he supported a 25 basis point increase, rather than a larger 50 basis point increase.
On the back of this, the Dow Jones Industrial Average rose 596.40 points, or 1.8%, ending at 33,891.35, while the S&P 500 index climbed 80.28 points, or 1.9%, closing at 4,386.54, as each of the broad-market benchmarks sectors advanced. The Tech-heavy Nasdaq Composite Index rose 219.56 points, or 1.6%, finishing the trading day at 13,752.02, after hitting an intrasession low at 13,493.90.
As energy prices continue to surge, oil settled on $110.60 per barrel at the end of trading on Wednesday, the highest in 11 years. This will undoubtedly be felt globally at the gas pump for ordinary consumers. In response to this, The U.S. and other countries in the International Energy Agency agreed on Tuesday to release an additional 60 million barrels of oil from their emergency reserves, in an attempt to alleviate any supply shortfall caused by Russia’s invasion of Ukraine. In addition to that OPEC+, made up of the Organization of the Petroleum Exporting Countries and its allies, offered no surprises at its monthly meeting by agreeing to boost production in April by another 400,000 barrels a day in an attempt to bring rising global energy costs down.
Investors have been kept on their toes as the demand for the safe-haven yellow metal continues amid the conflict between Russia and Ukraine. At the end of the trading session on Wednesday, gold held its ground at $1,926.10 per ounce and U.S. gold futures rose 0.4% to $1,930.50. Although gold is considered a safe investment during political and economic uncertainty, rising U.S. interest rates increase the cost of holding the asset, so this becomes a double-edged sword for investors, and as peace talks between Russia and Ukraine continue, investors need to be cognizant of the reality of a better economic outlook and how it will weigh on gold. So one potential scenario is a spike towards those all-time highs of over the $2 000 mark over the next two weeks before the effect of higher interest rates and increased stability on the geopolitical front start to pull gold prices down again.
In week two of Russia’s invasion of Ukraine, it is clear to see the wide-reaching implications of the invasion itself on the global economy, but also the reaction that nation-states have had by imposing financial sanctions on Russia. On the back of these developments, Bitcoin prices have surged as investors appear to view the volatile cryptocurrency as a safe haven for their money and Russians and Ukrainians seek alternatives to their country’s financial institutions. Evidence for this is seen in the sharp spike in the value of Bitcoin as it gained over 25% in just the past week since the beginning of the conflict.
The Optimal Play
While Moscow continues its offensive on Ukraine, there is light at the end of the tunnel as both sides indicate they are ready to resume talks to end the conflict. The U.N. General Assembly also voted on Wednesday to condemn Russia’s Ukraine invasion while calling for an immediate end to the clashes.
However, investors still remain cautious amid these developments, and currently, the sentiment is still leaning towards Dollar exposure as a hedge against the current geopolitical instability. In this regard, Aluma’s Listed Global Note is an ideal investment vehicle to give your portfolio the desired offshore Dollar exposure that is required to protect and grow your capital as the demand for its safe-haven status continues.