Market Wire - Russia Invades Ukraine, Markets Plunge

Karl Schamotta - Chief Market Strategist, karl.schamotta@corpay.com

Russian President Vladimir Putin launched what he called “a special military operation” in Ukraine a short time ago. Largely unconfirmed reports suggest that troops are crossing the border from multiple directions, armoured columns are on the move, and artillery fire is occurring across a wide front. Cruise and ballistic missile strikes are hitting a number of cities, including Kyiv, the country’s capital - although these may be aimed at knocking out air defences.

In an address on Russian television, Putin claimed he did not plan to occupy the country, saying, “The goal is to defend people who have been victims of abuse and genocide from the Kyiv regime. We will strive to demilitarize and de-Nazify Ukraine. We will also hand over everyone who committed bloody crimes against civilians, including Russian citizens, to court."

The Russian president told other countries to stay away, warning that the response would be “consequences that you have never encountered in your history”.

In response, US president Joe Biden said “Russia alone is responsible for the death and destruction this attack will bring, and the United States and its allies and partners will respond in a united and decisive way. The world will hold Russia accountable”.

The White House is expected to announce a second round of economic sanctions tomorrow.

S&P 500 futures are down more than 2 percent, the Nasdaq has lost 2.5 percent, and commodity prices are soaring. Brent crude is trading just below the $100 threshold as investors position for disruptions in global gas and oil supplies.

In currency markets, a full-fledged flight to safety is underway, with the dollar and yen up 0.3 percent and 0.25 percent respectively. The Russian energy-dependent euro is down 0.65 percent.

Long-term bond yields are experiencing extreme volatility, with investors struggling to process the implications for inflation and monetary policy. If the history of geopolitical shocks is any indication, the impact on global markets could fade relatively quickly, exposing market participants to swift reversals - we suspect Treasury yields could rebound rather sharply as inflation expectations rise.