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American markets today, viewed several hours before the 9:30 a.m. Eastern time opening appear set for a continued drop. The S&P 500, Dow and Nasdaq are all deeply in the red as investors, traders, politicians, governments and observers attempt to assess the damage being wreaked by Russia’s invasion of Ukraine.
Canadian markets appear poised for the same outcome as the TSX 60 and TSX Composite are deeply in the red with limited hope of struggling into the green during this trading day.
European markets are open at time of writing and have been plunging throughout the trading day there.
Amongst precious metals the safe havens of gold and silver are up.
Amongst currencies, the Canadian dollar, the Euro and British pound sterling are all down against the American greenback
As the trading week ends, we continue trying to assess the direct implications of Russia’s Ukraine invasion directly as well the effect of the massive list of Western sanctions.
"The market is driven so much by news headlines risk that the fundamentals barely matter at the moment," says Michael Hewson, chief markets analyst at CMC Markets in a Reuters report.
"You have escalating inflation risk, you have huge uncertainty about what's going to happen next on the headline front, and a Russian president who wouldn't rule out nuclear weapons - that is a pretty toxic backdrop," Hewson said. Major headlines today will include Russia’s attack on a Ukrainian nuclear site and United States Secretary of State Antony Blinken’s talks with the North Atlantic Treaty Organization, more commonly known as NATO.
The sum total impact of these events is enormous but still incalculable, and we will feel them in our investments, travel plans, banking, at the gas pump and even when buying groceries.
The war has exposed Western corporations to unforeseen revenue losses, ruptured supply chains and spurred huge questions of reputational risk and conscience. “If you make a dollar from Russia right now, I would call it blood money …” said Andrew Forrest, Fortescu Metals Group Founder and Chairman in a Bloomberg interview.
As well as BP, ExxonMobil and other oil companies, the list of companies headed for the Russian exit includes entertainment giants Walt Disney Corp. and Warner Bros., retail titan H&M Group, clothing manufacturer Canada Goose, online travel company Expedia, as well as vehicle manufacturers Volvo, General Motors, Ford, Daimler, Mercedes Benz and Harley Davidson.
Amongst the FAANG+ stocks, Apple’s move will set the tone for other home electronics companies, suggests Dan Ives, Managing Director of Equity Research at Wedbush Securities in New York. “With Apple's move this week to ban the sales of its products in Russia we expect more tech stalwarts to head down the same path and pull the plug on Russia over the coming weeks given the horrific atrocities seen coming out of Ukraine,” he says.
Apple has no stores in Russia, but the company sells through third party websites, partners and vendors. Apple has banned various Russia state-controlled news outlets and apps from its App Store as well as removing traffic and live incidents from Apple Maps. “This is a move the Street would gladly applaud given the heartbreaking Ukraine invasion by Russia that is playing out in front of the world's eyes,” he says.
Europeans and others holding European equities face a double hit, suggests James Athey, Investment Director at London-based Abrdn.
“The Russia-Ukraine situation is a major headache for Europe. Geographical proximity, heavy reliance on exported energy and greater direct economic linkages (compared to the United States for example) mean that the shock facing Europe is likely to be large,” he explains.
That means significantly higher inflation and significantly lower growth – exacerbating what was already an unhappy trade-off for the European Central Bank.
Athey figures that the effect will dominate European Central Bank deliberations and that that will lead to pushback against hawkish market pricing.
Still, the ECB’s mandate is more narrow than other major central banks and therefore they have limited ability to ignore inflationary pressures.
“Ultimately that means they need to retain the option to hike rates in the future by slowing and subsequently stopping their asset purchases even if there is a nasty negative growth hit ahead,” he says. That combination means a negative tailwind for European assets.
The economic damage to Russia grows every day as banks and the stock market close and the Russian rouble collapses. Western index providers MSCI and FTSE Russell plan to remove Russia from their indices. Fitch Ratings has downgraded Russia's Long-Term Foreign Currency Issuer Default Rating to ‘B' from 'BBB' and placed the ratings on Negative Watch. Not surprisingly, Fitch cites the severity of international sanctions in response to Russia's military invasion of Ukraine and says that has heightened macro-financial stability risks, represents a huge shock to Russia's credit fundamentals and could undermine its willingness to service government debt. Put more simply, this calls into question the Russian government’s financial stability and how much wartime strain can be absorbed by the Russian economy.
And when this war is over, we must assess where we and our investments stand in a new Cold War environment.
Related: Volatility Is Here to Stay
Al Emid is a financial journalist, broadcaster and author with two books underway.
The Emid Report on Volatility 2022 – the next in the series -- is scheduled for release in Summer 2022 and his book on foreign investing is scheduled for release in January 2023.