Russia’s threat to Ukraine has sent tremors across financial markets, but equities have had little reaction. However, if Russia were to deploy soldiers over the border, it might generate a significant risk-off event, which would lead to lower stock prices and higher commodities prices.
If Russia invades Ukraine, the United States vows to impose harsh penalties. Even while Russia insists it has no plans to invade, its control over important commodities might cause problems for the rest of the globe.
For the time being, the markets aren’t factoring in the possibility of a Russian invasion of Ukraine, but the price of oil and European gas may skyrocket. The price of oil and other commodities has already increased, and Russian assets have taken a blow as a result.
The dollar might increase, U.S. government rates could fall, and commodities like wheat and palladium could rise in the event of an invasion.
“Russia is unlikely to go to war as long as negotiations continue, says Marc Chandler, chief market strategist at Bannockburn Global Forex. While the Russian ruble has lost 2.2% of its value this year, it has gained 4.1% in the last five days, outperforming other emerging market currencies.
According to Chandler, “since they’re still talking, the market understands it doesn’t have to worry about it right now.” Perhaps as much as politicians care about it, the markets aren’t bothered about it as much.
Impact On Stocks
With inflation at multi-decade highs and interest rate hikes on the horizon, bond markets have had a miserable month. US 10-year rates are still lingering near to the important 2% threshold, while German 10-year yields have risen over 0% for the first time since 2019.
However, an all-out battle between Russia and Ukraine might alter that. Even if a Russian invasion of Ukraine further stokes oil prices and inflation, investors may return to bonds as the safest asset class after a large risk event, and this time may not be different.
As the Swiss franc has traditionally been considered a safe haven by investors, the euro/Swiss franc exchange rate is perceived as the most important measure of geopolitical risk in the eurozone.
For the second time in two months, gold is holding to two-month highs. It is expected that any halt in the supply of grain from the Black Sea area would have a significant effect on food prices and further fuel food inflation at a time when the COVID-19 epidemic has exacerbated food insecurity throughout the world.
The Black Sea ports of Ukraine, Russia, Kazakhstan, and Romania are used by four major grain exporters, all of which might be affected by military action or economic sanctions.
Ukrainian wheat and maize exports are expected to be the third and fourth highest in the world, respectively, in the 2021/22 season, according to International Grains Council statistics. When it comes to wheat shipments, Russia leads the way. read on for more information
According to UBS analyst Dominic Schnider, “Geopolitical concerns have escalated recently in the Black Sea area, which might impact wheat prices in the future.”
Influence On Gas And Oil
If tensions escalate into violence, energy markets are likely to suffer. Approximately 35 percent of Europe’s natural gas supply comes from Russia through pipelines that pass Belarus and Poland to Germany, Nord Stream 1 which goes straight to Germany, and additional pipelines that go via Ukraine.
As a result of demand being reduced by lockdowns, Russian gas exports to Europe decreased in 2020 and did not completely recover last year, when consumption spiked, causing gas prices to reach record highs.
In the event that Russia invades Ukraine, Germany has said that it may stop the new Nord Stream 2 gas pipeline from Russia. The pipeline is expected to enhance Europe’s gas imports, but it also emphasizes the continent’s reliance on Moscow for its energy needs.
Veteran strategist David Roche predicts that if Russia invades Ukraine, oil prices would “definitely” reach $120 per barrel and the world economy will be “radically transformed.”
Around 130,000 Russian troops, tanks, missiles, and even fresh blood supplies have been sent to the Ukrainian border, despite Moscow’s denials that it aims to attack. Ukraine will never be allowed to join NATO, according to the Kremlin, and NATO’s role in Eastern Europe should be curtailed altogether.
Natural gas supplies from Russia to Western Europe are expected to be considerably limited in the case of sanctions and gas prices are expected to return to Q4 levels, according to a SEB commodities expert.
Rigging restrictions or total interruption might potentially have an impact on oil markets. The invasion might happen “any day now,” according to White House national security adviser Jake Sullivan.
Currencies And Bonds In The Region
Any market repercussions from a possible armed conflict would disproportionately affect Russian and Ukrainian assets.
As tensions between the United States and its allies and Russia have risen, investors have reduced their exposure to both nations’ dollar bonds, causing them to underperform their peers.
Emerging market investors primarily target Ukraine’s fixed income markets, while sanctions and geopolitical tensions have reduced Russia’s overall capital market status in recent years, considerably cushioning any potential of contagion via those channels.
However, the rouble and the hryvnia of Ukraine have also plummeted, making them the worst-performing currencies in emerging markets this year.
According to ING’s global head of markets Chris Turner, the situation on the Ukraine-Russia border poses “significant concerns” for the currency markets.
Late 2014 reminds us of the liquidity imbalances and US dollar hoarding that contributed to a significant collapse in the Russian rouble at that time,” Turner added.
Crypto And Ukraine-Russia War
Ukraine is using fresh statistics to prove that it is crowdsourcing bitcoin to fight back as more than 100,000 Russian soldiers gather on the country’s border and world powers attempt to prevent all-out conflict between the two nations.
Elliptic, which offers blockchain analytics solutions to banks and some of the world’s top cryptocurrency platforms, reports that donations worth hundreds of thousands of dollars have streamed into Ukrainian nonprofit organizations and volunteer groups.
As a result of this, activists have used the cryptocurrency to finance the purchase of weapons, medicine, and drones for the Ukrainian army, as well as the creation of a face recognition tool that can detect Russian mercenaries and agents.
Cryptocurrency is increasingly being used by governments to crowdfund conflict, according to Elliptic’s principal scientist Tom Robinson.
Despite Russia’s denials that it intends to attack, the United States, the United Kingdom, and others have moved military equipment to Ukraine in anticipation of an invasion.
Volunteer organizations have helped Ukraine’s military for years by providing extra equipment and personnel. Protesters were aided by thousands of organized volunteers in Ukraine in 2014 when pro-Russian President Viktor Yanukovych was deposed.
Bitcoin and other cryptocurrencies have become more popular as a method of receiving donations from individual contributors because they enable them to avoid banking institutions that could reject contributions to Ukraine.
Fintech data analyst Boaz Sobrado, who has worked with charities in authoritarian countries such as the former Soviet Union and the former Soviet Union states, says that soliciting cash in crypto has the benefit of being far more difficult to seize.
According to Elliptic’s study, volunteer groups and non-profit organizations have raised a total of slightly over $570,000 in cryptocurrencies. Last year, a large portion of that money was received in cryptocurrency.
To combat money laundering, Elliptic’s software is occasionally used to look into illicit activities on the digital ledger of bitcoin. Volunteer groups, throughout Ukraine have been using bitcoin wallets in order to track where and how the cash is being used. Cryptocurrency contributions have been accepted by the Myrotvotrets Center in Kyiv since 2016, and the organization is presently developing a face recognition tool that can identify “militants, Russian mercenaries, and war criminals” based on a picture.
According to the Myrotvotrets Center, more than 100 bitcoin contributions have collected at least $267,000 thus far.
Bitcoin has been used by pro-Russian rebels from the beginning of the war between Russia and Ukraine. “Fear they would drive them towards crypto fundraising, which is far tougher to control,” says Sobrado to CNBC about Russian authorities not closing down opposition bank accounts.
Sobrado went on to note that crypto fundraising for unpopular causes has a long history, from WikiLeaks to Russian opposition figure Alexei Navalny, who has also raised bitcoin donations.
The Ukrainian government has been making moves to accept cryptocurrencies on a national basis for a long time now. “
Volodymyr Zelenskyy approved a bill in 2021 that allowed Ukraine’s central bank to create its own digital currency.
On the other hand, a bill that would legalize and regulate cryptocurrencies is now in limbo between the president and the parliament. A passing of the bill would go a long way toward lifting crypto out of the legal murky area in which it presently resides, but it would fall short of El Salvador’s recent adoption of bitcoin as legal currency.
Businesses and investors will be able to participate in the Ukrainian cryptocurrency market this year, according to the Kyiv Post. High-ranking state officials have also bragged to Silicon Valley investors and venture capital firms about their crypto street cred, like it’s written on this website, A confrontation with Russia, though, may make these ideas moot altogether.
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