Die is cast: Stocks plunge, oil spikes as Russia invades Ukraine

Scores on the doors at the open: DAX -3.6%, CAC 40 -3.2%, FTSE 100 -2.4%. FTSE futures touched the January lows just ahead of the open but bounced as the cash equity market opened. US stocks plunged on Wednesday, led by tech, and futures are softer still. Dow futs have lost 1,500 points since yesterday afternoon. SPX heading into correction territory at the open after just missing out on that crown yesterday (10% below Jan all-time high).

Russian markets are in meltdown, chiefly on sanctions fears and the country effectively being ousted from the international financial order. Russia’s ruble-denominated MOEX sunk 35%, the dollar-denominated RTSI down 40%, its worst day on record, whilst the ruble plunged. Russia’s central bank has intervened but the currency was still down by 7% against the dollar, with USDRUB at 87. Sanctions will bite, access to Western capital markets, etc. Also temporary ban on short selling is being used.

Brent oil futures spiked to $103, WTI up to $97 from below $93 prior….demand destruction levels. Certainly stagflation prices. Gold spiked to $1,950, its highest since the end of 2020. Bitcoin plunged 5% to $35k…think we are finding out which of the two is the real haven.

There was an air of complacency yesterday as investors hoped that Russia’s incursions would be limited. That fragile hope has been shattered a Russian forces moved in overnight, apparently on all fronts. Putin delivered a TV address calling to “de-Nazify” Ukraine and demanded their forces lay down their arms. He also demanded Ukraine demilitarised. Looks like a move for blitzkrieg to install a Kremlin puppet regime.

The West is following up with more severe sanctions…but it’s hard to think these can work now the die is cast. Another spectacular foreign policy failure by Biden…a new era for the security order not just for Europe but everywhere. China can look to Taiwan.

Question for you stock pickers and traders: When do the moves look overdone; when do you start nibbling away at some bargains? There is considerable pressure on all risk assets and the broad capitulation will inevitably lead to some babies being thrown out with the bath water. Fast markets…but it will quieten down…we are probably close to peak ‘fear’ markets wise…unless there is some escalation but it’s hard to see the West getting involved on that front…look to VIX backwardation softening first though. Currently seeing VIXX at 32 but has pulled off its highs from this morning a touch.

Elsewhere…BAE Systems up almost 3%, RR -14% on earnings and departure of CEO Warren East, Lloyds also down almost 7% on its full-year profits missing expectations. BP shares -3% (Rosneft) vs Shell -0.5% this morning despite the soaring price of oil.