The Russia-Ukraine Conflict Changes Everything For Financial Markets. Why?

Investors made a widespread market sell-off just hours after Russian military troops invaded Ukraine in a “special military operation”, spreading fear among financial markets.

Indeed, traditional safe haven assets like gold saw increased interest, while indices, currencies, and cryptos took a beating on February 24. Nevertheless, the global financial market rebounded, mitigating the consequences of the drop and even gaining strength.

Meanwhile, investors are wary that stagflation risks will complicate the central banks’ ongoing trials of going forward. Investors are selling stocks and piling into commodities, showcasing reduced belief in the stock market. One of the major indices, Nasdaq, fell into a bear market, which attracted many buyers. 

Also, the escalating Russia-Ukraine conflict further brings investor expectations for stronger Fed rate hikes as some traders anticipate inflationary shock to trigger aggressive tightening, while others focus on the downside risks to the economy.

The Russian ruble lost ground

As expected, the first asset that would suffer from lowered investments, was the Russian ruble, which plummeted Russia’s national currency. Indeed, the USD/RUB pair skyrocketed overnight after Russia invaded Ukraine, hitting a new record high fractionally below the round figure of 90.00. Since the high, the ruble managed to gain some traction, settling to 83.15 RUB as of press time.

The move upwards was anticipated by Russia’s central bank, but its efforts to stop the trend only slowed what experts believe would be a collapse of Russia’s financial system. Furthermore, many nations gathered around the thesis that Russia should be expelled from the SWIFT international fiat transfer protocol, but Germany and Italy opposed the decision.

Oil and gas prices went up

Crude oil is back above $100 per barrel, as the potential for an extended military conflict is growing, which keep oil prices above the $100 should level over the short term. However, the over-aggressive energy traders may create turbulence in the oil segment, especially after the Biden administration announced they will once again tap strategic reserves when they need to and after the second round of sanctions did not put Russian energy supplies at risk.

Gold makes a pump-and-dump

Traditionally used for crypto assets, one of the largest safe haven instruments known to humans – gold, experienced a similar price performance. Many investors fled the markets, putting all of their belongings into gold, which skyrocketed its price to $1,974 per troy ounce from a low of $1,890 just a day earlier. It may seem like a moderate price spike, but gold’s market capitalization is around $9 trillion, which makes such spikes substantial.

What about cryptos?

The crypto market acted in conjunction with the overall financial recovery trend, with Bitcoin trying to secure a price level above $40,000 after reaching a monthly low of $34,459.22 right after the war conflict started. Since then, the world’s largest crypto to date bounced back, effectively mitigating the consequences of the price drop.

The rest of the crypto sector followed suit. Ethereum, for example, is back above $2,600 after plummeting to a monthly low of $2,308.91 at the same time as Bitcoin dropped its price. However, Ethereum’s trading volumes are also high enough to provide vital support, as opposed to Bitcoin, which records a decline in trading volumes.

Source: Crypto Browser

Overall, the crypto market is recovering from a rough week, but some projects mark a better recovery than others. Terra (Luna) is up almost 20%, which not only managed to put the project back on track but also the bounce managed to push LUNA to a monthly high of $67.80 before easing down to a current price level of $66.52 per token.