Market Wire - Update: Putin Orders Troops Into Ukraine

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

Update: According to a translation of a Russian-language document sourced by a reporter at the Financial Times, President Putin has ordered a "peacekeeping operation" to begin in Donetsk and Luhansk. Equity and commodity markets are coming under renewed pressure, while most major exchange rates remain relatively stable.

Earlier:

After a long and remarkably bellicose speech, Russian President Vladimir Putin announced signing a decree recognizing the independence of separatist republics in Ukraine. “As for those who captured and are holding on to power in Kyiv, we demand that they immediately cease military action,” Mr. Putin said. “If not, the complete responsibility for the possibility of a continuation of bloodshed will be fully and wholly on the conscience of the regime ruling the territory of Ukraine.”

In setting out a long list of grievances against the West, Mr. Putin claimed: "The US and Nato have shamelessly turned Ukraine into a theatre of potential military action against Russia. Ukraine's armed forces may well be commanded directly from Nato headquarters”. “Nato admitting Ukraine and putting its weaponry there is a settled question," he said. "They're looking at a sudden strike against Russia.”

Putin bemoaned the collapse of the federation that made up the Soviet Union, saying, “We gave these republics the right to leave the union without any terms and conditions. This is just madness”. He then confirmed signing memorandums of “friendship, cooperation, and mutual aid” with Donetsk and Luhansk - a step that potentially lays the groundwork for military intervention on Ukrainian territory.

The ruble plunged toward the 80-per-dollar mark as European Commission president Ursula von der Leyen and European Council president Charles Michel said that they “condemn in the strongest possible terms the decision by the Russian President to proceed with the recognition of the non-government controlled areas of Donetsk and Luhansk oblasts of Ukraine as independent entities. This step is a blatant violation of international law as well as of the Minsk agreements.,” promising “The Union will react with sanctions against those involved in this illegal act. The Union reiterates its unwavering support to Ukraine’s independence, sovereignty and territorial integrity within its internationally recognised borders.”

Markets are in risk avoidance mode, with safe haven currencies rising as traders seek shelter against potential turbulence. Euro-yen implied volatility - a proxy for Europe’s exposure to higher gas prices, and market appetite for safety - is spiking higher, but remains slightly below levels reached on the 12th. Brent, the global oil benchmark, is trading just above $96 a barrel, up almost four dollars a barrel from this morning’s low, but also seems to be losing momentum as the shock fades and investors take profits.

Confirmation of military action could deliver another blow in the coming hours and days, but markets have long prepared for this moment, making uncontrolled moves relatively unlikely in the short term. The sheer hostility embedded in Mr. Putin’s words, however, should resonate more deeply, putting global markets on an almost-perpetual defensive footing as a second Cold War unfolds in the years to come.