Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

How a Russian-Ukraine conflict might hit global markets

CommoditiesJan 21, 2022 01:45PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., November 29, 2021. REUTERS/Brendan McDermid/File Photo

LONDON (Reuters) - A potential invasion of Ukraine by neighbouring Russia would be felt across a number of markets, from wheat and energy prices and the region's sovereign dollar bonds to safe have assets.

Below are four charts showing where a potential escalation of tensions could be felt across global markets:

1/SAFE HAVENS

Inflation at multi-decade highs and impending interest rate rises have made for a bad month for bond markets, but an outright Russia-Ukraine conflict could change that.

Two-year U.S. Treasury yields have seen the biggest monthly jump since 2016 and 10-year rates appeared headed for the key 2% level. In Germany, 10-year yields rose above 0% for the first time since 2019.

A major risk event usually sees investors rushing back to bonds, which represent the safest assets on planet and this time may not be different, even if a Russian invasion of Ukraine risks further fanning oil prices -- and therefore inflation.

"Clearly if the Ukraine story was to go wrong there would be quite a significant bid for Treasuries, and this notion of the 10-year getting to 2% would be put on hold," said Padhraic Garvey, regional head of research, Americas at ING.

Other safe-havens include gold, already at two-month peaks as well as the yen.

(Graphic: 'Safe haven' prices as Ukraine tensions build, https://fingfx.thomsonreuters.com/gfx/mkt/gdvzyklegpw/One.PNG)

2/ GRAINS AND WHEAT

Any interruption to the flow of grain out of the Black Sea region is likely to have a major impact on prices and add further fuel to food inflation at a time when its affordability is a major concern across the globe following the economic damage caused by the COVID-19 pandemic.

Four major exporters - Ukraine, Russia, Kazakhstan and Romania - ship grain from ports in the Black Sea which could face disruptions from any military action or sanctions.

Ukraine is projected to be the world's third largest exporter of corn in the 2021/22 season and fourth largest exporter of wheat, according to International Grains Council data. Russia is the world's top wheat exporter.

"Geopolitical risks have risen in recent months in the Black Sea region, which could influence wheat prices ahead," said Dominic Schnider, strategist at UBS.

(Graphic: Soaring food prices fuel inflation pressures, https://fingfx.thomsonreuters.com/gfx/mkt/zgpomagzlpd/Soaring%20food%20prices%20fuel%20inflation%20pressures.PNG)

3/ NATURAL GAS AND OIL

Energy markets are likely to be hit if tensions turn into conflict. Europe relies on Russia for around 35% of its natural gas, mostly coming through pipelines which cross Belarus and Poland to Germany, Nord Stream 1 going directly to Germany, and others through Ukraine.

In 2020 volumes of gas from Russia to Europe fell after lockdowns suppressed demand and did not recover fully last year when consumption surged, helping to send prices to record highs.

As part of possible sanctions in the case Russia invaded Ukraine, Germany has said it could halt the new Nord Stream 2 gas pipeline from Russia that was expected to increase gas imports to the bloc but also underlines Europe's energy dependence on Moscow.

SEB commodities analyst Bjarne Schieldrop said markets would see natural gas exports from Russia to Western Europe likely significantly reduced both through Ukraine and Belarus in the event of sanctions and gas prices revisit Q4 levels.

Oil markets could also be affected. JPMorgan (NYSE:JPM) said the tensions risked a "material spike" in oil prices and noted that a rise to $150 a barrel would reduce global GDP growth to just 0.9% annualised in the first half of the year, while more than doubling inflation to 7.2%.

(Graphic: European gas prices hit record highs in December, https://fingfx.thomsonreuters.com/gfx/mkt/znvnelrqxpl/European%20gas%20prices%20hit%20record%20highs%20in%20December.PNG)

4/ REGIONAL DOLLAR BONDS AND CURRENCIES

Russian and Ukrainian assets will be at the forefront of any markets fallout from potential military action.

Both countries' dollar bonds have underperformed their peers in recent months as investors trimmed exposure amid escalating tensions between Washington and its allies and Moscow.

Ukraine's fixed income markets are chiefly the remit of emerging market investors, while Russia's overall standing on capital markets has shrunk in recent years amid sanctions and geopolitical tensions, somewhat cushioning any threat of contagion through those channels.

However, Russia's rouble and Ukraine's hryvnia have also suffered, making them the worst performing currencies in the emerging markets universe so far this year.

Geopolitics on the Ukraine-Russian border presented "substantial uncertainties" to foreign currency markets, said Chris Turner, global head of markets at ING.

"The events of late 2014 remind us of the liquidity gaps and U.S. dollar hoarding that led to a substantial drop in the rouble at that time," said Turner.

(Graphic: Ukraine Russia bonds feeling the heat, https://fingfx.thomsonreuters.com/gfx/mkt/byvrjmynnve/Ukraine%20Russia%20bonds%20feeling%20the%20heat.PNG)

How a Russian-Ukraine conflict might hit global markets
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
John Avenetti
John Avenetti Jan 21, 2022 1:58PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Why did we have so much peace and prosperity with the last President and why are the wheels coming off with this one?? anyone?
Show previous replies (1)
Alan Rice
Alan Rice Jan 21, 2022 1:58PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Great question !! Have a nice weekend :)
Sattar Langary
Sattar Langary Jan 21, 2022 1:58PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
No ***i guess!
Don Getty
Don Getty Jan 21, 2022 1:58PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
trump was putins puppet - no need for war, trump was working to ease Putin's problems - Biden on the other hand isn't kissing Putins backside - go figure
Christopher Barber
Christopher Barber Jan 21, 2022 1:58PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Don Getty how soon we forget Biden gave Russia their much needed oil pipeline…… in his first couple of days in office at that too. And let is not forget how Biden recently greenlighted “micro” incursions by Russia.
Trumpster Rocks
Trumpster Rocks Jan 21, 2022 1:58PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Don Getty You listen to Msnbc and Cnn way too much! Msm is no better. If you want the truth listen to conservative media . That's what they are into. The Truth! You are truly embarrassing yourself! lol
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email