The worst case scenario is confirmed. The president of Russia, Vladimir Putin, has begun the invasion of the Ukrainian region of Donbass this morning and, in addition to the battle on the ground, which already counts dozens of deaths, has declared war on the West, including a nuclear threat. While waiting to find out what the international response will be like, investors are running for refuge in the midst of the ‘economic shock’. Stock markets around the world fall, while oil, gold and bonds soar, with their prices rising and their yields falling.
which have come close to a whopping 5%, in what is its worst day since June 2020. Even so, at closing, the Ibex 35 has limited its losses to 2.86%. The German Dax, the French CAC 40 and the Italian FTSE MIB closed with falls of around 4%. The Asian stock markets did not escape falls either. The Chinese in Hong Kong and Shanghai have come to lose more than 3%, while the Nikkei in Tokyo and the Kospi lost around 2%. “Investor sentiment is in a fear zone,” says Javier Molina, an expert at eToro.
However, the worst part has been taken by those involved. The Russian Moex stock index, which has suspended all trading for a good part of the day, has returned to activity with its biggest drop in history.
On the forex market, the Russian ruble and the Ukrainian hryvnia remain the two worst performing currencies globally this year. In fact, the ruble is already moving at the lows of 2016 when it crosses with the dollar. The Russian central bank has already announced that it is prepared to intervene.
The opposite path already takes above 8%. A barrel of Brent, a reference in Europe, exceeds 100 dollars for the first time since 2014, while that of West Texas, a reference in the US, moves above 97 dollars. Gas shows advances of 30%. It should be remembered that Russia produces 10% of the world’s oil and is the largest European supplier of natural gas.
, the quintessential refuge, rises around 0.6%, although it has reached peaks of 2%, at highs at the beginning of 2021, while the rest of the metals also follow an upward path. It is revalued by about 3%, up to $3,388 per ton on the London Stock Exchange, and is already above its 2008 highs.
Wheat and corn futures in Chicago rose to the maximum allowed by the stock market and have been locked for several hours. The conflict leaves major crop importers especially vulnerable, as Ukraine and Russia supply a wide range of countries from Asia to the Middle East and Africa, and
The money runs to The bonds that usually act as a shelter, the American, Swedish and German ones, are the ones that are attracting more investment this Thursday, reducing their returns and rising in price.
Bitcoin is down almost 9% to $34,800 per unit, while the correction in ethereum deepens to 12%. Cryptocurrencies once again show that they have little or nothing to do with a safe haven asset.
An attack in full recovery and with inflation through the roof
In addition to the direct impact on the markets, the repercussion that the war in Ukraine may clash with the economic recovery undertaken after the pandemic. According to Juan J. Fdez-Figares, from Link Analysis, the impact on the energy market and, consequently, on the rise in prices, is another scenario to analyze because it can lead the markets to have to face a scenario low growth and high inflation.
Ben Laidler, global markets strategist at eToro, also points out that we are facing “a triple whammy for the world economy, with a toxic combination of higher inflation, lower economic growth and greater uncertainty.” There is a silver lining, he says: that growth is strong, “a buffer for any slowdown, and policymakers and investors are already prepared for high inflation.”
There are many reviews in this regard. Monica Defend, Amundi’s global research director, has told Bloomberg TV that “the situation is evolving towards the most severe scenario we had in mind”, where “the real loser in economic terms will be Europe. Just because inflation will be driven by to higher energy prices and the risk of second-round effects to growth”.
With this framework, it would not be ruled out that central banks have to change their roadmap. Yannis Stournaras, a member of the ECB Governing Council and governor of the Bank of Greece, has assured Reuters that the body is willing to at least until the end of the year and will keep it open to changes to cushion the consequences of any conflict in Ukraine. Stournaras has been the first ECB official to explain how events in Ukraine may affect the plans of the euro zone central bank.
The start of the war
Putin’s order to start a military operation in Donbass transforms geopolitical tensions into the start of a war, although several explosions have been recorded in different cities of Ukraine (beyond that region) during the early hours of the morning after Russian troops have landed in Odessa.
The Ukrainian government has denounced a “large-scale invasion” although the Kremlin denies that it wants to occupy the country. The adviser to the Ukrainian Interior Minister, Anton Gerashchenko, has indicated to local media that “missile attacks have been carried out on various military installations in the capital, Kiev, in Kharkiv and in Dnipro, a Russian landing party has landed in Odessa and Russian troops have crossed the border near Kharkov.”
As reported by the Russian Armed Forces, and collected by the Interfax agency, Russia would have “neutralized” the Ukrainian air bases at the beginning of the operation. Russia’s ultimate goal is to “demilitarize Ukraine” and ensure a pro-Moscow government in kyiv, eliminating US influence.
Attacks on cities in Ukraine on February 24. Image: EP
After the start of the military operation, Ukraine “has gone into full defense mode” and has called to arms the volunteers of the Territorial Defense Units: “Anyone who is ready and able to hold a weapon can join to the Territorial Defense Units in their region”, the military formation has published in a post on Facebook where it offers a list of the addresses of all the recruitment centers in the country.
The situation is very delicate. Ukrainian President Volodymyr Zelensky has ordered his army to cause “the greatest possible losses to the invader” from Russia. They claim that Russia has launched missiles against numerous airfields and other military infrastructure, but also reports attacks against civilian targets along the border with Russia and also with the annexed Crimean peninsula.
However, the Russian Ministry of Defense has assured that “there is no threat to the civilian population” in Ukraine because the offensive is limited to containing the Ukrainian military operation. Hence, the first attack was directed at the anti-aircraft defense systems, they explain. The US, for its part, has indicated that its Russian intelligence sources suggest that Putin’s goal is to “decapitate the Ukrainian government” and appoint a puppet dictator from Moscow.
“Mass sanctions” against Russia
Putin’s order represents the biggest challenge to the West since the tensions began. Before the meeting with the G/ scheduled for this Thursday, US President Joe Biden condemned the “unprovoked and unjustified” attack by Russia and stressed that partners and allies “will respond in a united and decisive manner “and has advanced that the US and NATO allies will impose on Russia “additional consequences” for “this unnecessary act of aggression against Ukraine.”
Also before the meeting of the Twenty-seven, the President of the European Council, Charles Michel, and the President of the European Commission, Ursula von der Leyen, in which they “appeal to Russia to immediately cease hostilities, withdraw its Army of Ukraine and fully respect the territorial integrity, sovereignty and independence of Ukraine”.
For the moment, NATO has activated the Defense plans and will be able to deploy response forces to the Russian invasion. This allows the Atlantic Alliance to deploy Rapid Response Forces in Ukraine in a matter of days “if necessary”, since it does not have any base troops on the ground.
Russia faces an escalating sanctions list against the backdrop of international condemnation. Von der Leyen has warned in a statement early that the EU will impose against Russia: “Putin will pay for the aggression against Ukraine.”
Yesterday Brussels approved yesterday after recognizing Putin (the step prior to today’s attack). The Twenty-seven gave the final go-ahead to apply the first measures against 351 members of the Duma and 27 political leaders, military commanders and entities involved in the maneuver in Donbass “that undermines the sovereignty and territorial integrity of Ukraine”.
The restrictions imposed so far limit Russia’s access to the EU capital market, the trade of the two rebel provinces and will affect Russian banks that finance the army, such as Rossiya, Promsvyazbank and VEB-bank. In addition, on Tuesday Germany announced the mega-oil pipeline that was called to transport gas from Russia to German lands. This is, however, a double-edged punishment as it further fuels the rise in the price of gas in Europe.
Impact for European economies
In an institutional statement at the Moncloa Palace, Pedro Sánchez has demanded that Putin cease the “invasion” of Ukraine and the “flagrant violation” of its national sovereignty and territorial integrity, guaranteeing that “Spain will defend international legality, will go out of its way to restore peace and show solidarity with the populations affected by the conflict”.
Sánchez has not hidden that the conflict “without a doubt” will have an impact on the Spanish and European economy (price rises, gas…) and has assured that the EU has been preparing the response for some time to take “as many measures as are necessary to mitigate the economic and energy impact”.
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