Stock markets in the United States were in the red Thursday after Russia launched an invasion into Ukraine.
The Dow Jones Industrial Average was down by more than 700 points, or 2.13%, after opening following the deadly Russian invasion. The S&P 500 retreated by 1.5%, and the Nasdaq composite was off by about 1%. The attack, which began early Thursday morning local time, has generated uncertainty in the markets and fears about how a lengthy war could affect the global economy.
The Chicago Board Options Exchange Volatility Index, better known as the VIX, is intended to gauge fear in the markets. The index was up more than 9.7% on Thursday and at its highest level in more than a year following Russia’s invasion.
The Dow is on track to close in correction territory, meaning down more than 10% from the all-time highs, should the downward pressure on stocks persist throughout the day. The S&P 500 already tumbled into correction territory earlier this week amid fears of the pending war.
RUSSIAN STOCKS CRATER BY AS MUCH AS 45% AFTER ATTACK ON UKRAINE
The invasion is also driving up energy prices, which were already soaring in the face of a global energy crunch. The price of oil climbed to its highest price since 2014 because of the military action, with international benchmark Brent crude surpassing $105 a barrel, while U.S. West Texas Intermediate futures saw the biggest increase in eight years, surging by more than 8% to trade at $99.46.
Natural gas futures in Europe also surged 50%. Russia is also a major producer of metals such as aluminum and nickel, and aluminum prices increased more than 3% to hit a record high of $3,450 per ton on the London Metal Exchange.
The price of gold, the traditional safe-haven asset in times of conflict and uncertainty, climbed to $1,921 — up from the $1,900 level it was at earlier this week.
“The U.S. economy is not walled off from Russia’s invasion of Ukraine. Oil prices have been rising and are rising amid the growing tensions, and that’s going to exacerbate already high inflation,” said Mark Hamrick, a senior economic analyst at Bankrate. “As Russia and Ukraine are major producers of some commodities, futures for wheat and natural gas are surging in Europe.”
Bitcoin and other cryptocurrencies, on the other hand, retreated sharply after Russia’s invasion. Bitcoin was down more than 6.6% at about midday Thursday, registering at $36,000. Ethereum, the second-largest cryptocurrency by market cap, tumbled by more than 9%, and Ripple shed about 10% of its value.
Bitcoin is a risky asset class, like speculative stocks, meaning that it suffers when there is major market uncertainty and people want to invest in more secure assets.
Some investors have seen Bitcoin and other digital assets as a possible hedge against inflation and uncertainty, although recently Bitcoin has heeled closer to traditional stocks.
PUTIN DECLARES WAR ON UKRAINE: WHAT NOW?
The market chaos is even more pronounced in Russia, which saw its major stocks gutted after the start of the invasion.
The MOEX Russia index plunged as much as 45% before rebounding to trade down 33%. Trading on the exchange was suspended for some time on Thursday in light of the freefall. Sberbank, Russia’s largest bank, was down nearly 50% while the second largest, VTB, retreated more than 41% as Russian forces clash in Ukraine. Russian oil giant Rosneft was down as much as 58% at one point.
“If the U.S. and its allies impose more rigorous sanctions on Russia, the Russian government’s ability to access financial markets will be hindered. Severe disruptions in trade, investment, and oil production and supply are on the cards, all alongside a blow to consumer sentiment,” said Gargi Rao, an economic research analyst at GlobalData.
Another effect that the conflict might have on the U.S. more directly is on the Federal Reserve’s plan to hike interest rates for the first time in years. The Fed is preparing to act more hawkishly in response to accelerating inflation.
Markets are now pricing in a slightly less aggressive period of rate hikes, given the invasion. Some had expected the central bank to carry out a half-point hike right out of the gate in March, although that now appears less likely.
“The invasion makes a 0.50-percentage-point hike at the Fed’s March meeting much less likely, but the Fed is still very likely to raise rates by a quarter percentage point with U.S. inflation far above target, job growth momentum strong, and domestic demand buoyant,” said Bill Adams, a chief economist for Comerica Bank.
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President Joe Biden is expected to address the nation about the war in Ukraine on Thursday afternoon and is likely to announce new, more forceful sanctions against Russia and associated entities.
“Russia alone is responsible for the death and destruction this attack will bring, and the United States and its allies and partners will respond in a united and decisive way,” Biden said shortly after the invasion. “The world will hold Russia accountable.”
