22.02.2022 – Moscow has recognised the breakaway Ukrainian republics of Lugansk and Donetsk as independent. Russian President Vladimir Putin ordered the deployment of troops to the so-called People’s Republics last night. The first tanks are said to be rolling already. Goldman Sachs and Rabobank venture a forecast of what all this means for the markets.
This is what Ukraine is facing now
Told you so: Just as we have predicted here several times, it has come to pass. Now there are several possibilities: FIRST – Russia occupies the new republics within a few days; this follows the pattern of South Ossetia and Abkhazia, where Russia stationed troops after the 2008 war against Georgia and recognised the dwarf regions as independent.
SECOND – Russia also occupies the entire south of Ukraine to draw a corridor to Moldova to the breakaway pro-Russian territory of Transnistria. This Novorossia, as the separatists would like it to be, would make up about a third of Ukraine. THIRD – the crisis will be settled diplomatically after all. We see the odds at 45-45-10 for the three scenarios.
War on – risk off
In the first two cases, depending on Ukraine’s resistance, this will trigger a violent market reaction on the short side. This is because many investors will sell off their assets for fear of a third world war. There is still room for downside: Ultimately, not much has happened on the stock market at all, as the weekly chart of the S&P 500 proves. In fact, the SPX is still far from its 200 moving average. That could become the next stop. If not the Corona low from 2020.
Here’s how Goldman sees it
Goldman Sachs has calculated the pessimistic case of war on the one hand, and the positive scenario of de-escalation on the other. The analysis was published before the stock market opened yesterday. Here are the results:
– War: The S&P 500 could still fall by around 6 per cent. De-escalation: up 5.6 per cent.
– Stoxx 600: down 9.3 per cent or up 8.4 per cent.
– Russel 2000: down 10.2 per cent; up 9.2 per cent
– Nikkei 225: down 8.6 per cent; up 7.7 per cent
– MSCI Emerging Markets: down 7.7 per cent; up 6.9 per cent.
Three Rabobank scenarios
Rabobank takes a more complicated approach to the issue of war. According to it, there are three scenarios: A – a short war. Within the next six months, trade between Europe and Russia would be massively disrupted. Oil would rise roughly as it did during the Libyan war, when Brent climbed from $90 to $125. Since a large part of the harvest would fail in Ukraine, the price of wheat would probably increase by 30 per cent, maize by 20 per cent.
B – War and effective sanctions against Russia, the occupied part of Ukraine and Belarus by the US, EU, Australia, New Zealand Japan and South Korea. Oil increases in price to 135 dollars for a longer period. Corn and barley increase by 30 percent.
C – Sanctions also against China, which has already announced that it will support Russia. With the consequence of unforeseeable price shocks around the globe.
So much for a look into the crystal ball. We add: One scenario that is not yet on anyone’s radar is the possibility that some NATO countries will support Ukraine with troops on their own – the British, the Poles or the Baltic states, for example. Then things would get really dicey. Bernstein Bank keeps an eye on the matter for you!
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