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Russia Invades Ukraine, Crude Pops Over $100, Ruble Slumps - What's Moving Markets

Economy Feb 24, 2022 12:06
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By Peter Nurse -- Russian President Vladimir Putin authorizes an invasion of Ukraine, resulting in U.S. indices moving into correction territory, the ruble falling to a six-year low and Brent crude climbing above $100 a barrel for the first time in over seven years. U.S. GDP is set to climb to 7% in the fourth quarter, while drinks giant AB InBev impresses with its forward guidance. Here's what you need to know in financial markets on Thursday, 24th February. 

1. Russia invades Ukraine

Russian President Vladimir Putin has ordered an all-out invasion of Ukraine, announcing early Thursday on state TV "a special military operation" against his country’s southern neighbor, seeking its “demilitarization and denazification.”

Russian forces have reportedly fired missiles at several Ukrainian cities and landed troops on its south coast, while Ukraine’s defense minister said there has been intense shelling of Ukrainian units in the east, as well as military control centers and airfields.

The full scope of the Russian offensive is not yet clear, but U.S. President Joe Biden vowed the United States and its allies would respond decisively to the "unprovoked and unjustified attack."

European Union leaders are set to meet at an emergency summit in Brussels later Thursday to decide how to react, but European Commission chief Ursula von der Leyen said “we will target strategic sectors of the Russian economy by blocking their access to key technologies and markets."

"In addition, we will freeze Russian assets in the EU and stop the access of Russian banks to the European financial market."

This could mean barring Russia from the SWIFT financial messaging system, which could have long-term effects on global economic growth.

2. Ruble falls to six-year low

The ruble took the brunt of the market’s shock at Putin’s decision to order Russian forces into Ukraine, falling to its lowest level since early 2016, leading the Moscow Exchange to suspend trading.

By 6:05 AM ET (1115 GMT), USD/RUB traded 3.1% higher at 83.6669, having climbed earlier as high as 87.9909.

The Russian central bank has taken measures to try and stabilize its financial markets, increasing daily dollars offered via foreign exchange swap operations with banks to $5 billion from $3 billion.

It also said that it will intervene in the foreign exchange market for the first time in years and would provide additional liquidity to banks by offering 1 trillion rubles ($11.5 billion) in an overnight repo auction. 

Elsewhere, safe havens were in demand, with the U.S. dollar index, which measures the greenback against six major peers, climbing 0.7% to 96.880, its highest level since Jan. 31.

EUR/USD fell as low as 1.1209, the lowest level since late January, while the risk-sensitive AUD/USD slumped 0.8%. 

3. Stocks set to open sharply lower; Dow set to drop over 800 points

U.S. stock markets are set to open sharply lower, moving deeper into correction territory as investors react to the Russian aggression towards Ukraine.

By 6:05 AM ET, Dow Jones futures were down 815 points, or 2.5%, while S&P 500 futures were down 2.4% and Nasdaq 100 futures were down 3.1%.

This weakness follows on from a downbeat session on Wall Street on Wednesday, with the blue-chip Dow Jones Industrial Average falling almost 500 points, or 1.4%. The broad-based S&P 500 fell 1.8%, ending around 12% below its Jan. 3 record close, below the 10% retreat that marks a correction. The Nasdaq Composite declined 2.6%.

The DJIA is heading towards a correction from its early January high, while the Nasdaq is on course to shed 20% from its November record closing high, i.e., bear market territory.

Stocks in focus Wednesday include Anheuser-Busch InBev (BR:ABI) after the world's largest brewer forecast bigger profits in 2022, while ecommerce giant eBay (NASDAQ:EBAY) issued earnings and revenue guidance for both the first quarter and the full year that fell below expectations.

Booking Holdings (NASDAQ:BKNG) will also be in the spotlight after the online travel agency reported still weak gross bookings and room nights booked, key parameters still behind pre-COVID levels.

4. U.S. GDP to reach 7.0%

Aside from the turmoil in Eastern Europe, the main issue on investors’ minds is whether the Federal Reserve will raise short-term rates when it meets next month, and by how much.

Many now expect the central bank to hike by 50 basis points, given the elevated levels of consumer prices and the strength of the U.S. recovery. 

Further evidence of this arrives later Thursday, with the fourth quarter quarterly GDP figure, due at 8:30 AM ET, set to rise by 7% from 6.9% growth in the previous quarter. 

The weekly jobless initial claims are due at the same time, are are expected to fall to 235,000 from 248,000 the previous week.

5. Crude breaks through $100/barrel

Crude oil prices soared over $100 a barrel for the first time since 2014 after Russian troops launched an invasion of Ukraine, prompting fears of a major disruption to global energy supplies.

The Western powers announced sanctions on a number of Russian banks and individuals close to Putin on Wednesday after he recognized two breakaway regions in eastern Ukraine, but new, more severe measures look set to follow Thursday’s move.

“While Western governments probably will exempt energy transactions from sanctions, the blizzard of new restrictions will force many traders to be exceedingly cautious in handling Russian barrels,” said analysts at Eurasia Group, in a note. 

Russia is the world's second largest oil producer and is the largest supplier of natural gas to Europe, providing about 35% of the latter's supply. 

Providing a small drag on the market, traders are also keeping an eye on the negotiations between the Western powers and Iran over reviving a nuclear agreement which could see the Persian Gulf country’s crude exports returning to the global market.

Additionally, U.S. crude stockpiles rose more than expected last week, with the American Petroleum Institute reporting an increase of 6 million barrels last week. The official report from the Energy Information Administration is due later Thursday after the holiday weekend. 

By 6:05 AM ET, U.S. crude futures were up 8.3% at $99.81 a barrel, while Brent crude futures were up 8.1% at $101.61 a barrel, traded through $100 a barrel for the first time in over seven years. 

Gasoline RBOB Futures were up 6% at $3.0469 a gallon.

Russia Invades Ukraine, Crude Pops Over $100, Ruble Slumps - What's Moving Markets

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