Equities are guaranteed to remain choppy and mostly untradable for at least the next few weeks barring a rapid resolution to the conflict in Ukraine. That doesn’t preclude rallies. In fact, it makes them more likely.
In times of acute stress, markets become thin and headline-driven. Thin, headline-driven markets can (and usually do) serve up counter-trend rallies, sometimes of epic proportions.
With that caveat, it’s notable how many bear markets have developed. Most obviously, Hong Kong equities remain a total, bombed-out disaster. The city is coping with an acute COVID outbreak and local shares have been beset for more than a year by the fallout from Beijing’s ongoing regulatory crackdown. On Monday, the Hang Seng dropped another 4% to the lowest in a half-dozen years (figure below).
H-shares, meanwhile, fell to the lowest since 2009 (!).
But it’s not just Hong Kong. The broad regional benchmark is now in a bear market too. Monday’s losses pushed the MSCI Asia Pacific Index over the ledge, with the decline from last year’s record high now in excess of 20% (figure on the left, below).
The same was true for the Euro Stoxx 50 (figure on the right, above). Although European shares recovered (a testament to the idea that equities are impossible to trade at the current juncture), the gauge was some 23% below the highs at Monday’s worst levels.
European gas prices staged a terrifying rally to start the week, underscoring the imminent peril from a prospective curtailment of Russian energy flows.
While German and French shares bounced alongside the broader European gauge, the DAX and the CAC 40 were both teetering precariously on the brink of technical bear markets. Notably, EUR 5y5y inflation swaps jumped 14bps to an eight-year high, while 10-year breakevens in Germany widened to a record.
Writing on European equities last week, Goldman’s Sharon Bell called direct exposure to the conflict “small,” but gently cautioned that the “ramifications” are quite large.
“While Russia/Ukraine are often small in terms of direct sales/earnings for European companies, the ramifications when supply chains are already disrupted, energy markets are tight and inflation already high are likely to be much more significant than the small direct exposures might imply,” Bell said.
I’d say that’s a good candidate for understatement of the month.
If one word can be used for the Ukraine crisis, it’s instability.
The more I study this situation the clearer it seems that global chaos is the wider goal for Putin’s current invasion.
The reason to bomb civilians, to destroy apartments and infrastructure is to cause panic. That panic results in streams of refugees, who flood into the UK, placing systemic strains on fragile pandemic recoveries.
Essentially, that humanitarian flood will become a cancer that eats away resources, supercharging inflation and widening bottleneck problems.
It’s an evil plan that obviously will weaken the West but more than likely either destroy Russia or be the catalyst for world war.
“The reason to bomb civilians, to destroy apartments and infrastructure is to cause panic. That panic results in streams of refugees, who flood into the UK, placing systemic strains on fragile pandemic recoveries.”
Putin did not plan on such resistance. No? He thought that the chaos/panic model would preclude his current Ukrainian options as I remember it.
“Essentially, that humanitarian flood will become a cancer that eats away resources, supercharging inflation and widening bottleneck problems.”
Assigning such economic and logistical planning may be a gross over attribution of the man’s strategic capacity. He may be a smart thug, or even a very smart thug, he is not a genius thug. We are going to be defeated by processing the humanitarian flood. In fact that may be a windfall for economic benefit to some degree.
“It’s an evil plan that obviously will weaken the West but more than likely either destroy Russia or be the catalyst for world war.”
I will agree that “world war” was a potential outcome inside of Putin’s head going in, but not the plan. The resolve of the people’s he may have sought to bring disarray/panic upon on a global scale have increased the odds of world war. This did not occur by Putin’s own design. Another other option not mentioned, is the destruction of Putin, and by hook or by crook that is the most desirous outcome for all but a few and that should factor into probabilities.
This situation can last a couple of months but the instability it breeds is not sustainable for a long period of time. Something will change. H is correct to observe that rallies are also possible in stock markets even likely in this environment. I cannot even fathom what will happen globally in the next 3 months. Given all this, I think it is laughable to be highly critical of many government leaders or central banks. What this event does is probably hobble the far right globally. Will French voters turn out Macron for a far right admirer of Putin in a couple of weeks? It seems far less likely to me. I would bet that Trump influence fades also, just as a love affair in the US with demogogues faded with the onset of WW2. It will be interesting to see what happens.
“In a speech to Republican donors in New Orleans, Donald Trump said the US should put the Chinese flag on F-22 jets and “bomb the shit out of Russia” in retribution for its invasion of Ukraine.” [Guardian story]
Aside from the arrant stupidity of that suggestion, it shows the GOP is pivoting so fast on Russia that even its dimmest adherents should realize something’s up.
The “right wing loves Putin” trope is fading quickly. Some anecdotal points:
– 3,000 Americans have volunteered for the Ukranian military, to acclaim from the right. https://www.foxnews.com/us/american-citzen-joins-ukraines-fight-russia
– AMMO, the decidedly right-wing owner of Gunbroker.com, has announced a donation of 1 million rounds of ammunition to Ukraine, to positive response from Gunbroker.com users, a right-wing demographic
– FOX News has flipped to running anti-Russia, pro-Ukraine Op-Eds https://www.foxnews.com/opinion/end-ukraine-slaughter-and-stand-up-to-russia-americans-tell-biden-in-new-poll
Expect the Dems and Reps to scramble to outdo each other in their zeal to tighten sanctions and align with Ukraine. US ban on Russia oil coming soon, I reckon, along with more military aid. NATO may be pressured into establishing a “no-fly zone”, starting in the western part of Ukraine. Beating Russia may be presented as an inflation fighting tool.
One question I have is – If the Russian invasion forces we’ve been watching over the past two weeks are not Russia’s best… then where are Russia’s best and what does the butcher of Ukraine have planned for them?
Let’s hope the butcher’s nuclear weapons are as badly maintained and battle ready as his invasion forces. There is a ton of maintenance that goes into keeping them operational.
Russia has a very large military, but a lot of its manpower (personpower) is in navy and air force. Russia’s ground troops number about 280,000. https://sgp.fas.org/crs/row/IF11603.pdf This is active-duty troops, doesn’t include “reserves” (term not same meaning as US reserves; basically, all former conscripts are considered in the Russian reserves after their 1 year consciption ends) or contractors. Navy and air force manpower combined is larger than ground force.
Those numbers, which are only approximate, suggest that Russian has committed half or more of its active duty ground force to the invasion of Ukraine. Unknown (to me) how much of the ground forces Russia “needs” on station in other areas, how much of the non-committed ground forces are actually combat-ready, how much of the reserves (discharged conscripts, etc) can actually be called up, equipped, deployed, and supported, in a reasonable time, etc.
Pre-war, Ukraine’s ground forces were reported at about 150,000, plus 900,000 “reserves” (term similar meaning as for Russia). I’ve read that 100,000 Ukranians have volunteered for the army during the invasion.
My general sense (not any sort of military expert here) is that Ukraine’s ground forces may not be massively outnumbered by Russia’s committed ground forces in raw manpower.
The imbalance in vehicles and heavy weapons is (I think) much larger. Unclear (to me) whether or how much Ukranians have been reducing that imbalance, using the anti-tank weapons they have and have been sent.
The imbalance in air power is huge. For reasons I don’t understand, Russia air power seems to have seriously underperformed so far. The imbalance in naval power seems to me of little importance here.
Anyway, my guess (that’s all it is) is that Russia didn’t send the worst part of its ground forces to Ukraine. I would guess it’s more likely that Putin’s generals sent their better units.
Sorry, hadn’t meant to post that anonymously! Thought the post was lost so also hadn’t meant to post the same thought twice.
@Anon/@jyl: Will quibble with just this, “The imbalance in naval power seems to me of little importance here.”
First, the funky looking Russian amphibious assault ships disgorged their vile cargoes into the theater where the Blitzkrieg of the Sloths seem to have made their most rapid advance towards the center of Ukraine and thereby cutting off retreat from, and logistical supply routes to, the rear of Ukrainian embattled/pinned-down Eastern Front.
Second, it will be naval power that bottles up any chance of Ukraine earning meaningful hard currency from agricultural exports going forward. But it gets worse. The naval blockade prevents sufficient quantities of food and supplies to efficiently reach increasingly beleaguered Ukrainian military forces and civilians from the center eastward.
Clearly, if the West goes to war with Russia, and wins, it will be imperative White Nationalist Russia never gains access to the Black Sea again. No doubt Georgia will be glad to help with that bit of gerrymandering. ?
We must never forget one thing about Central Europe, especially whenever the current conflict ends and the surviving powers gather to draw up settlements and new maps: it is a veritable Cradle of War.
Not any kind of military expert but some research on Russia’s armed forces suggests that half or more of its active duty ground forces manpower may have been committed to the invasion of Ukraine. I would guess that Putin’s general didn’t send their worst 45-50% of ground forces to such an important mission.
@jyl: Don’t know if it was your intention, but, you are making a pretty good rationale/bullet-point for a counter attack geo-political-powerpoint presentation once maximal degradation of Putin’s conventional war-machine in Ukraine is achieved…. Remember the articles about how the combination of object tracking software and eye-in-the-sky photo mapping of conflict areas in Iraq was updated and reapplied in the Mexican drug wars (Juarez comes to mind) to track vehicles back and forward in time from the sites of atrocities to reveal drug lord locations, weapon caches, drug distribution centers, etc ? Have to wonder what human and AI intelligence is doing along similar lines, if anything, with the reams of data, of which we only see tantalizing glimpses in the media, with regard to Russian mobile war hardware. Or perhaps, the West has entirely succumbed to Chairman Powell Syndrome and will remain frozen in the headlights of the approaching inflation juggernaut until WW III literally runs over them before they stop dithering? Just sayin’.
So, how far is the Dow/S&P/Nasdaq from Bear Territory? Is Kolanovic still buying the dip?
Not sure about Kolanovic, but the butcher would sure appreciate it if we would please buy the dip in the ruble. From 28 when Putin won his first election to 150+ today before, presumably, the CBR intervened out of sheer embarrassment, Putin’s career is looking like one long dip for Russia. If only Russia had had a democracy and Putin had to run on his ruble record. It would be like trump running on IQ points.
Yup. Putin will have a “rub[b]le record” second to none after Ukraine. At least the US/West made misdirected and culturally inept attempts to rebuild the infrastructure we rubble-ized bringing lowercase “l” liberal democratic values to the unconverted hearts and minds. Only to have the good works of our missionary zeal re-rubble-ized by the resurgent forces of the get-the-f*ck-outta-my-country brand of anti-infidel-ism…. To be sure, human history is a kaleidoscope of stupidity from nearly ever perspective if we live long enough and learn enough to look closely, but, sometimes one must choose the lesser of stupidities and commit to it.
Wonder how the Dinar and the Pul are doing lately?
Trying are these times to be sure.