President Vladimir Putin on Wednesday ordered Russia’s first mobilization since World War Two, warning the West that if it continued what he called its “nuclear blackmail”, Moscow would respond with the might of all its vast arsenal.
The euro tumbled to a two-week low against the dollar, European stock markets slipped, and investors piled into safe-haven bonds, pushing yields on German and U.S. government debt down.
Here’s a look at market reaction:
THOMAS SIMONS, MONEY MARKET ECONOMIST, JEFFERIES, NEW YORK
“I think it’s partly why we’re seeing the market (Treasuries) trade a little bit better today. I think even with this Russia stuff it’s hard to see the market really rally a lot more from here ahead of the FOMC. Yesterday we sold off quite a bit, at least in the morning, and I think that that was partly a buyers’ strike - not really willing to take risk, mess with positioning before the FOMC meeting. I think that maybe this Russia stuff brings some buyers off the sidelines, but I don’t think that it is enough to really motivate a big position shift without knowing the Fed too. It could compound some move after the Fed, but I don’t think that it’s really going to drive the market until after.”
“The comments that Putin made are pretty long-term in terms of when they’re actually going to manifest themselves in reality with the deployment of reserve troops, or if there is eventually some sort of nuclear conflict, that’s not today. It puts the market on alert, but I don’t think it necessitates a big position shift. Obviously the comments on a surface read are quite negative because it suggests that there’s this escalation of the war effort, but on the other hand it also I think could be interpreted as a big sign of weakness too, which is this desperation that this huge country of Russia can’t close the door on this war with Ukraine…Obviously they’ve seen massive foreign aid come in that has helped their resistance effort, but it’s not the same. Russia and Ukraine shouldn’t be on equal footing from a military power standpoint and if Russia is having to go to a mandatory draft is this the beginning of the end of Putin’s reign? These things don’t tend to end well. I think that there are some two-sided risks in the long run that you can take away from these comments, it’s not purely negative.”
PETER TUZ, PRESIDENT, CHASE INVESTMENT COUNSEL, CHARLOTTESVILLE, VIRGINIA
“It’s regrettable but the U.S. market is driven by interest rates and inflation and earnings for the rest of the year absent some catastrophic use of force over there like nukes or chemical weapons. That’s the end of him, and probably the end of the country, Russia as a member of the world community. That’s a pretty drastic step. I think it doesn’t happen.”
“U.S. interest rates, inflation and earnings at the forefront now (for stock market) at least and probably until the end of the year. There’s small odds of something catastrophic happening but it’s small odds. I don’t think it’s on people’s minds so much right now. It happened last night. Futures are already looking up today.”
MARC CHANDLER, CHIEF MARKET STRATEGIST, BANNOCKBURN GLOBAL FOREX, NEW YORK
“Putin’s move has contributed to the firmer dollar and weaker euro ahead of the FOMC meeting. There already was risk-off. The dollar bloc sold to new two-year lows today, and sterling made a new low since 1985 and China, the dollar got to a new two-year high against the RMB. In some ways, as far as the affects go, Putin pushed on an open door. We were taking risk off ahead of the FOMC meeting in any event.”
“When Russia initially invaded, I thought that all they wanted was the eastern parts. I was wrong. That becomes the back-up plan, Plan B. He calls for these referendums, annexes the territory and now he’s fighting for his homeland. And what I point out in my commentary the other day was that NATO and many of the U.S. allies did not like U.S. action in Vietnam. The U.S. did not call it a war, it called it a police action. We didn’t lose our allies over it and I think that China and India have a broader relationship with Russia than just Russia’s foreign policy.”
“As long as Putin is there, Russia has to regear, redirect its economy eastward and that means tighter commodity trade with China and India, with military ties with India, Iran and Turkey. The other thing it means as NATO has gone east against Russia’s frontier, China is coming up through the underbelly and the old central Asian republics. They just announced new railroad ties that basically go to Europe but bypass Russia in a quicker route. Part of this represents the reorientation of Russia eastward. Turkey is interesting in this too. It’s the first NATO country to try to join the Shanghai organization.”
ART HOGAN, CHIEF MARKET STRATEGIST, NATIONAL SECURITIES, NEW YORK
“It’s amazing how little we are paying attention to that and to me the fact that this 3-day war turned into 210 days, shows the sort of diminishing returns of shock value we get from what clearly is an escalation. The market’s view of that has only been expressed in a slight bump up in the defence industry stocks. and energy prices. But it is relatively shocking, if this were six months ago, the market would have a much larger reaction but in the here and now and we are 210 days into this now and it feels like Ukraine continues to put up strong resistance with a united NATO support so to the extent that what would otherwise be a very market moving event, markets have moved that to the back burner, even with the threat of using nuclear weapons, which is the most shocking part of the news story.”
“To the extent that we heard some rumblings of this yesterday that may well have been part of yesterday’s drawdown but it’s really hard to know the combination of advance notice of this escalation being priced in yesterday and yet the defence industry stocks and the energy component didn’t make the move until today so it’s hard to rationalize that.”
“It was also equally surprising and unrelated that we got relatively good news yesterday on China easing back on some of their covid restrictions and all that did was show up in casino stocks and nothing else. Frankly, that is one of the largest impediments to supply chains in all sorts of industries and yet the casino stocks were the only sector that applauded that, which just tells you that everything is about the domestic focus and monetary policy. It seems like all markets care about is whether the Fed goes 75 basis points or a full percentage point which again is equally ludicrous because it’s all about where they stop, not the steps along the way.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“It’s affecting the commodities markets - we’re seeing oil move up. And the dollar continues to strengthen even further. War news is giving metals and oil a temporary move to the upside.”
“The news is sensational. From a geopolitical standpoint, Putin is frustrated that the war isn’t going his way and he’s threatening the west. It’s not the first time.”
“It’s something that would move the commodities market, but the stock market today is focused on what the Fed will do or say.”
“Why aren’t (stock index futures) reacting negatively? Stock investors are putting this mobilization on the back burner. It could just be a temporary factor.”
“Yields are going down ahead of the Fed announcement. Yields and the dollar are getting boosted, falling into the safety trade.”
CHRIS WEAFER, CHIEF EXECUTIVE, MACRO-ADVISORY (A CONSULTANCY TO COMPANIES ON DOING BUSINESS IN RUSSIA)
“There had been a sense in Europe that Russia would look for a compromise. Today’s announcement makes it clear that is incorrect. Russia is digging in for the long haul. They are prepared to tough it out.”
“Russia is prepared for a winter where there is no Russian energy going west. They have been able to build up strong financial reserves. This year, Russia has made so much money exporting oil and gas. There is enough money in the system … to maintain stability. They will not have an economic crisis.”
“Moscow woke up to … its dependence on Europe. It has done a great deal about that, whereas Europe has done nothing until this year.”
“Russia is much better prepared for this confrontation than Europe is.”
“It indicates that Russia will be less ambitious … for territory than it was.”
“The footprint of war shrinks but becomes more entrenched. There is no point in having peace talks.”
GUNTRAM WOLFF, CHIEF EXECUTIVE, GERMAN COUNCIL ON FOREIGN RELATIONS, BERLIN
“The next six months are going to be tough. Germany was too reliant on Russian gas – that was clearly a mistake. Now this is being addressed big time. January and February are covered by gas storage. Russia has lost a very important customer and they are not going to get it back.”
“The public sees the cruelty and nihilism of Putin’s Russia and they are not willing to give in to blackmail.”
ARNE PETIMEZAS, SENIOR ANALYST, AFS GROUP, NETHERLANDS
“I strongly think of his February speech. That was also ignored at first.
“It is not yet a total war for Russia because there is no full mobilization. But I think Putin is underestimated. He has escalated every time. For him it is life and death. I don’t see why his next move will be de-escalation unless he wins. Which of course isn’t good either. He keeps going.
“It’s a bit difficult to see structurally lower yields. The war has led to higher yields.”
SUSANNAH STREETER, SENIOR INVESTMENT AND MARKETS ANALYST, HARGREAVES LANSDOWN, UK
“I think there will be more of a flight to safety. We’re likely to see the dollar gain strength again. And I think there will be a rally to funds which perhaps offer security.
“The ECB came out saying that the rate hikes are going to be much stronger, but it didn’t seem to impact the German bond yields which have fallen, which is an indication that investors are fleeing into assets that are considered more safe.”
GILES COGHLAN, CHIEF MARKET ANALYST, HYCM, UK
“If the market was taking those threats seriously you would see markets crash, and the fact that we haven’t seen any such movement shows that the Russian threat for now is being perceived as sort of sabre rattling, because we’ve heard these threats before.
“It’s not perceived to be likely that Russia is about to start a global nuclear war that’s going to end civilization. So, I think that’s the right response from the markets now.
“If you look at when the Russian-Ukraine crisis started, there were two currencies that fell sharply, the euro and the pound, and that was due to their geographical proximity.
“The general rule of thumb is, the worst the conflict gets, the more pressure is on the euro and the pound. But conversely, if the conflict is resolved - say, there’s some peace agreement or arrangement that brings peace back to the euro region - you’d expect the euro and the pound to gain.
“If it gets really, really bad, I’d expect the dollar to rise.”
COLIN ASHER, SENIOR ECONOMIST, MIZUHO CORPORATE BANK
“The initial implications are clear: it’s a potential escalation which is negative for the outlook in the euro zone, and so it’s unsurprising that the euro is weaker. It has boosted risk aversion more broadly, so the dollar is stronger.
“It was interesting to me that dollar/yen dipped on the news of the announcement, potentially indicating a return of the yen’s safe-haven credentials which have been absent for much of the year.
“If the conflict in Ukraine escalates then that’s clearly negative for growth, but it’s not clearly disinflationary. An escalation may add to supply chain strains.”
JUSTIN TANG, HEAD OF ASIAN RESEARCH, UNITED FIRST PARTNERS, SINGAPORE
“A partial mobilization will affect the Russian economy at a time when it can least afford it, with the government being able to call on businesses and civilians to contribute to the war time effort not just financially but also physically.
“Given the passage of time that the ‘special operation’ has taken, the partial mobilization will not be taken warmly domestically. Any resulting economic downturn will lead to increased resentment. The mobilization is a sign of Putin’s desperation and the effectiveness of Ukraine’s recent counter offensive.
“While Putin’s move is calculated to help him win the war, it may just hasten his demise and spark a virtuous cycle in the global economy by easing food and energy supply issues that will see inflationary pressures subside.”
GARY NG, SENIOR ECONOMIST, NATIXIS, HONG KONG
“It creates an extra layer of uncertainty. In a world with high geopolitical tension, the Russia-Ukraine (war) is still on the radar of many investors. Recently, there are really two major things that investors will be looking at – the first is the Fed, the second is Russia-Ukraine.”
“If there is greater movement from Russia, then obviously we would probably see higher pressure in the market like in equities, and money will probably flow back again to safe haven (assets) such as the dollar, which will make it even stronger.”
DANNI HEWSON, FINANCIAL ANALYST, AJ BELL, LONDON
“The potential (is) that the situation that we have witnessed in Ukraine could get worse and spiral into something that nobody wants to see. The potential that we could get into a situation where the nuclear threat is used as more than just blackmail, as more than just a deterrent is terrifying for investors.
“What it seems to be doing is affecting the dollar. Obviously we have a situation where investors flock to safe havens, and we’ve also got the anticipation that we are going to see another rate hike from the Federal Reserve today.
“So the dollar was already looking quite punchy and clearly just the proximity to Ukraine of countries in Europe does make people consider what the situation might look like if the war in Ukraine becomes something bigger. So it’s a double-edged sword, which is impacting the euro, sterling and the dollar in different ways.”
CARLOS CASANOVA, SENIOR ECONOMIST ASIA, UBP, HONG KONG
“Everyone has been extremely nervous about the FOMC meeting this week, and we’ve seen very defensive positions. This announcement by Putin to intensify the escalation in Ukraine definitely doesn’t help.
“It is fueling risk-off sentiment and adding to anxious expectations among global investors. We are seeing a flight to safe havens as a result.
“It’s definitely pushing the dollar up. Most of the impact is in Europe - naturally, given the proximity to the conflict - so a lot of depreciatory pressure (is) on the euro and also the pound, but also in Asia on the yen and the RMB (Chinese yuan), so across the board we are seeing the FX market react to this.
“I would anticipate this is not positive news for other risk classes like equities.”
JUSSI HILJANEN, CHIEF RATES STRATEGIST, SEB, FINLAND
“The escalation of the situation in Ukraine is definitely affecting the risk appetite, and bond yields are falling this morning because of this.
“It definitely has an impact on the bond market, especially because we’ve seen an extended stretch of increasing central bank rate hike expectations. It might be time for a breather and this geopolitical tension adds to the correction potential, at least temporarily, for lower yields.”
MICHAEL HEWSON, CHIEF MARKETS STRATEGIST, CMC MARKETS
“It’s the fact that he’s decided to dust off the nuclear card that obviously hasn’t gone down well, and the euro has really been feeling the effects of that as well. I think there is a perception that he’s really upped the ante, and how does the West respond to it?
“I think he’s realized he’s in trouble and he’s doing the only thing he knows how to do, and that is up the ante and find out if the appetite is there amongst NATO leaders and EU leaders to call him and, to be honest, with the stakes being as high as they are, they’ve got no choice.”
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