Explainer: How a Russian-Ukranian clash would affect markets and create trading opportunities
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UPGRADE- Tensions between Russia and Ukraine remain elevated into the new year.
- An outright war remains a remote scenario and could trigger a rush to safe havens.
- Without dragging Western countries, the knee-jerk reactions could provide trading opportunities.
Update February 14: There is no love lost between Russia and the West on Valentine's Day. According to the US, an invasion of Ukraine by Russia's army could occur at any moment, after amassing some 130,000 troops on their shared border. The latest warning came on Friday, February 11, and pushed oil prices to new highs while boosting the safe-haven dollar and yen. Markets may still experience a relief rally while bullets are not fired, reversing some of the trends. An outbreak of hostilities, however, could push WTI Crude Oil above $100 and send stocks plunging further.
How will the Russia-Ukraine conflict impact markets? Basically, geopolitical worries tend to boost the safe-haven dollar and yen. The Swiss franc could also gain ground but to a lesser extent.
Tensions have been rising between Russia and Ukraine in recent months, with worrying headlines of an imminent war. The US has been warning European countries that Russia has amassed troops on the Ukrainian border and that they could invade in January when the ground freezes and it would be easier for tanks to roll into Ukraine.
Some suspect that Russian President Vladimir Putin wants to stir up the prospect of conflict to win over concessions from the West, namely the removal of some sanctions and the opening of Nord Stream 2 – the controversial pipeline bringing Russian gas directly to Germany and bypassing Ukraine.
The US has threatened to impose sanctions if Russia gives the order to invade, but not more than that – Ukraine is not a NATO member and is unlikely to become one, contrary to Russia's worries.
With so much attention around a possible war, the chances of it happening are lower. The amassing of troops is probably being used as a bargaining chip – Russia does not want to occupy territory in which an insurgency can arise. It would likely settle for sticking to areas it already controls in Eastern Ukraine, where the population is sympathetic.
If a conflict were to break out, however, there is room for a knee-jerk reaction from markets – traders could rush to sell stocks and grab the greenback. The dollar is the king of cash and the ultimate safe haven.
Flows also tend to go to the Japanese yen, another funding currency. A war in Europe could also cause investors to seek the safety of the old continent's neutral county's currency – the Swiss franc, but to a lesser extent.
Such a knee-jerk reaction is unlikely to persist. Ukraine does not possess critical resources and Western countries are likely to intervene in a conflict between Russia and Ukraine. Sanctions could push oil prices higher in the longer term, but probably not more than that.
Overall, a Russian invasion of Ukraine could trigger a dollar-selling opportunity.
- Tensions between Russia and Ukraine remain elevated into the new year.
- An outright war remains a remote scenario and could trigger a rush to safe havens.
- Without dragging Western countries, the knee-jerk reactions could provide trading opportunities.
Update February 14: There is no love lost between Russia and the West on Valentine's Day. According to the US, an invasion of Ukraine by Russia's army could occur at any moment, after amassing some 130,000 troops on their shared border. The latest warning came on Friday, February 11, and pushed oil prices to new highs while boosting the safe-haven dollar and yen. Markets may still experience a relief rally while bullets are not fired, reversing some of the trends. An outbreak of hostilities, however, could push WTI Crude Oil above $100 and send stocks plunging further.
How will the Russia-Ukraine conflict impact markets? Basically, geopolitical worries tend to boost the safe-haven dollar and yen. The Swiss franc could also gain ground but to a lesser extent.
Tensions have been rising between Russia and Ukraine in recent months, with worrying headlines of an imminent war. The US has been warning European countries that Russia has amassed troops on the Ukrainian border and that they could invade in January when the ground freezes and it would be easier for tanks to roll into Ukraine.
Some suspect that Russian President Vladimir Putin wants to stir up the prospect of conflict to win over concessions from the West, namely the removal of some sanctions and the opening of Nord Stream 2 – the controversial pipeline bringing Russian gas directly to Germany and bypassing Ukraine.
The US has threatened to impose sanctions if Russia gives the order to invade, but not more than that – Ukraine is not a NATO member and is unlikely to become one, contrary to Russia's worries.
With so much attention around a possible war, the chances of it happening are lower. The amassing of troops is probably being used as a bargaining chip – Russia does not want to occupy territory in which an insurgency can arise. It would likely settle for sticking to areas it already controls in Eastern Ukraine, where the population is sympathetic.
If a conflict were to break out, however, there is room for a knee-jerk reaction from markets – traders could rush to sell stocks and grab the greenback. The dollar is the king of cash and the ultimate safe haven.
Flows also tend to go to the Japanese yen, another funding currency. A war in Europe could also cause investors to seek the safety of the old continent's neutral county's currency – the Swiss franc, but to a lesser extent.
Such a knee-jerk reaction is unlikely to persist. Ukraine does not possess critical resources and Western countries are likely to intervene in a conflict between Russia and Ukraine. Sanctions could push oil prices higher in the longer term, but probably not more than that.
Overall, a Russian invasion of Ukraine could trigger a dollar-selling opportunity.
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