Month: February 2022

Russia’s “full-scale” invasion of Ukraine weighs on the global financial markets, with significant losses on the equity markets around the world, sell-off in cryptocurrencies, while on the other side, commodities and safe-havens rallying as investors seek safety during the turbulence moments.

President Putin announced a “special military operation” to demilitarize Ukraine on Thursday morning, with his forces attacking significant infrastructure and military targets in and around the cities of Kyiv, Odessa, Kharkov, and Mariupol.

Market reaction:

Global equities hit hard during Thursday morning, with the MOEX-Moscow Stock Exchange losing to as much as 45% before recovering slightly higher, while the Russian Ruble crashed to new record lows against the dollar of 90 level.

US equity futures are rapidly extending losses from the day session, with Dow Jones losing more than 800 points or down 2,5% since Wednesday’s close.

In Europe, the pan-European Stoxx 600 dropped nearly 3.5%, to its lowest point of the year, with the German DAX index losing more than 5% since Germany has significant trade and economic exposure to Russia and Ukraine.

Fears over the escalating tensions in Ukraine have also removed risk appetite from Asia-Pacific markets as well, with Japan’s Nikkei 225 index falling almost 2% to a 15-month low, while markets in China, Australia, and South Korea dropped more than 3%.

The VIX-CBOE Volatility index, also known as Wall Street’s fear gauge, climbed to near the 38 mark, its highest since January 24, 2022.

Cryptocurrencies are getting hammered once again, with Bitcoin falling to as low as $34,000, posting a 50% loss from record highs of $69,000 hit on November 10, 2021.

Safe-havens rally:

Concerns over the escalating tensions in Russia and Ukraine weigh on risk sentiment, with investors looking for protection on the traditional safety assets such as Gold and other precious metals, bonds, and Japanese Yen, U.S. dollar, and Swiss Franc.

Gold and Silver, traditionally haven assets in times of uncertainty, rose 3% to $1,970/oz and $25,30/oz respectively, while Palladium gained more than 7% to $2,650/oz since Russia is exporting 50% of the metal necessary for the automobile industry.

The DXY index which tracks the greenback against a basket of its peers, climbed to 97,20 level, its highest since the end of January, with the Japanese Yen and Swiss Franc advancing across the board.

Risk-sensitive currencies plunged, with Euro breaking below $1,12, Turkish lira falling to $14,50, Pound Sterling declining below $1,34 and Australian dollar falling to near $0,715.

Bonds are also bid with the U.S 10-year yields down around 12bps from yesterday’s highs to 1,85% as investors now believe that Federal Reserve will hike rates at less magnitude than previews expected.

Energy rally:

The international crude oil benchmark Brent surged to as high as $106/b, while the U.S.-based WTI crude hits $100/b for the first time since 2014 as Russia’s dramatic escalation of the Ukraine crisis sparked fears of supply disruptions from the oil-rich area.

Brent crude oil, Daily chart

Russia is a key supplier of oil & gas to the world, being the world’s second-largest producer of natural gas and the third-largest oil-producing nation, just below the U.S. and Saudi Arabia. European natural gas Dutch TTF prices surged up to 41% to €125/MWh (nearly $40/mmbtu), the highest level in 2 months, and the U.S-based Henry Hub gas prices are spiking back to near $5 or up 6% after Russian forces attacked targets across Ukraine.

Significant gains in Agricultural and industrial metals:

Russia has been a commodity superstore with huge volumes of exports in cereals and industrial metals, while Ukraine has been a world-class exporter of Wheat.

As a result, the price of Wheat and Corn jumped 6% to $9.25/tn and $7,10/tn, posting a fresh 9-year high, while the price of Soyabean gained 12%.

For now, the biggest physical disruption to Russian-Ukrainian commodities flow appears to be on grains (wheat would be most affected), since Russia blocked the grain-export ports of Mariupol and Odessa this morning.

In the industrial metal sector, Aluminum prices posted a fresh record high of $3,350/lb, and Copper climbed above $4,52/lb as Russia export major volumes of both metals around the world.

Brent crude jumped to as high as $99/b while WTI rose to $95/b for the first time since 2014 on Tuesday morning following the overnight decision of Russian President Vladimir Putin to recognize the independence of the two self-proclaimed and pro-Russian republics of Donetsk and Luhansk, which are in the Donbas region of eastern Ukraine.

On top of that, Putin ordered his “peacekeeping” forces to enter the two separatist regions, violating the international law for Ukraine’s independence, sovereignty, and territorial integrity within its internationally recognized borders.

It’s good to be mentioned that the conflict between the Ukrainian army and the Russian-backed rebels in the Donbas region began in 2014 and caused the life of above 13,000 people, came shortly after Russia’s illegal annexation and occupation of Crimea the same year, a Russian-speaking peninsula on the Black Sea.

Brent approaches the $100 key level:

Brent price gained up to 4% this morning to near the $100/b key level after the dramatic escalation of the conflict in Ukraine, before retreating at $98/b later the day.

Brent crude, Daily chart

Investors fear for possible oil & gas supply disruptions from Russia which has been the third-largest exporter of crude oil in the world after the U.S and Saudi Arabia and the largest supplier of natural gas to the European Union.

Russia supplies Europe with 3 million barrels per day and the rest of exports volumes go mostly to Asian customers, especially in China through pipelines.

Crude oil prices gained more than 25% this year and almost 90% since the beginning of 2021 amid the supply/demand imbalance, recovering fuel demand, geopolitical risks in Ukraine and the Middle East, tight supplies, low inventories, and minimum spare capacity from OPEC+ alliance.

U.S. allies eye Russia sanctions:

U.S. and allies have warned that Putin’s recognition of the separatist regions in Ukraine could serve as a possible prelude to a Russian invasion and pledged to react with sanctions against those involved in this illegal act.

The EU has frequently stated that if Russia invades Ukraine, it will inflict “huge consequences” on its economy, but has also stated that, due to the EU’s significant energy and trade ties with Russia, sanctions will be placed in stages.

Crude oil prices fell from seven-year highs after Russia said on Tuesday morning that it has begun withdrawing some of its forces from Ukraine’s borders, a significant sign of de-escalation that is removing some geopolitical risk from the global financial market.

According to Russian news agency Interfax, the Russian Defense Ministry spokesman Igor Konashenkov said that the units of the Southern and Western Military Districts, which have accomplished their missions, are boarding trains and trucks and will head for their garrisons later today, while some units will join military convoys and will perform self-propelled marches.

Crude oil is down 3% but stays above $90/b

Following the de-escalation of tensions between oil-major producer Russia and Ukraine, Brent crude fell to as low as $92/b, down $6/b from its multi-year high of $97/b set on Friday afternoon following reports of an “imminent” Russian invasion to Ukraine, while the U.S-based WTI crude dropped to $91/b, down 5% from Friday’s highs.

WTI crude oil, 2-hour chart

On Wednesday morning, however, both Brent and WTI prices recovered some of their losses, gaining 1% as energy markets remain concerned about geopolitical concerns in Ukraine and the Middle East, dropping global oil stockpiles, soaring fuel demand following the pandemic, and tough supply growth.

Gas prices in Europe have dropped to a three-month low:

On hopes that the de-escalation would boost Russian gas supplies to thirsty-for-gas Europe, lead to the approval of Russian-owned Nord Stream 2 gas pipeline, and fill the continent’s empty gas storages, the European natural gas index Dutch TTF fell more than 2% today to €65/MWh, its lowest level since mid-November 2021.

Dutch TTF Natural Gas Futures, Daily chart

As a result, TTF gas prices in the Netherlands are about 60% lower than their all-time high of €180/MWh set at the height of the Ukraine turmoil in late December 2021.

Market reaction:

Investors cheered on the news of the withdrawal, with most of the global equity markets rebounding strongly from their monthly lows as geopolitical tensions eased.

Dow Jones gained more than 400 points or 1,2% up led by airline and travels stocks, while the tech-heavy Nasdaq Composite rose the most of 2,5%, recovering some of last week’s losses following the hawkish stance of the Federal Reserve.

On the opposite side, traders moved away from the Ukraine-crisis winner’s safe-haven metals, with Gold losing 1% to $1,850/oz, Silver down 2,5% to $23,30, Palladium falling 5% to $2,240/oz, and Platinum down 1% to $1017/oz.

Finally, the de-escalation news pressured the prices of grains as well since Russia and Ukraine account together with 30% of global grain exports.