Watch what happens over the next 36 hours.
That was the advice of a financial analyst as US investors woke up Saturday to news of an armed rebellion against Moscow led by Yevgeny Prigozhin, leader of the Wagner Group, a powerful Russian mercenary organization.
Others speculated that the Russian crisis could push US stocks lower, as some traders were already betting on a sell-off when markets reopened on Monday due to a sudden increase in geopolitical risk.
“Russian developments will ultimately suggest that President Putin’s leadership is rapidly weakening and resources may be diverted away from war with Ukraine. It’s too soon to say what this will do to Wall Street, but the risks of Putin’s desperate action could unnerve some investors,” Edward Moya, senior market analyst at Oanda, said Saturday.
A simmering feud between Prigozhin, the leader of mercenary contractors fighting alongside Russian forces in Ukraine, and the Russian Defense Ministry came to a head in the early hours of Saturday when Prigozhin led his troops to successfully overtake a Russian military outpost near the Ukrainian border. . It was used by the military as a headquarters to supervise warfare.
Amidst a mix of credible information and unsubstantiated speculation, market analysts are scrambling to understand the situation and what it could mean for financial markets and the global economy.
A major theme that has emerged so far is that US stocks could suffer if the military does not quickly quell the rebellion. Why is a potentially ending war in Ukraine bad for markets after the Russian military invasion in February 2022 bad for stocks?
The answer is an aversion to markets, where chaos leads to uncertainty, especially when it could disrupt global oil and food supplies.
“I bet this will create more uncertainty that will be negative for risk in general. In the short term, at least, the geopolitical risk premium will be higher. In the long run, the risk is really on both sides. The Russian front and the end of the war. Say?” Finalto senior market analyst Neil Wilson said in a memo to clients on Saturday.
Others have pointed out that the crisis is coming at a vulnerable time for US markets, with Michael Antonelli, market strategist at RW Baird & Co., tweeting that the crisis is “bearish” for US stocks.
S&P 500 Index
Last week’s series of rate hikes across the UK and Europe ended Friday’s worst week since March, fueling new fears of a global recession. Some analysts noted that signs that investors were growing more optimistic quickly followed the strong rally that sent stocks to their highest level in 14 months. There are concerns that this shift in sentiment could be a precursor to stocks finally capitulating and falling.
Sven Henrich, founder and chief strategist at Northman Trader, says the CBOE volatility index is
Or, the so-called fear gauge, which measures expectations of stock market volatility over the next 30 days, ended last week at 13.5, the lowest level since January 2020, despite a decline in stock prices.
If the stock continues to fall, Vix’s new low has once proven to be a reliable counter-indicator, suggesting that investors grew too complacent before panicking.
Asian markets will be among the first to react to developments under way by Sunday evening EST, but derivatives traders who use CME Group’s Globex platform to trade swaps that track the value of US stock indices are already betting on selling.
On the other hand, Bitcoin, an asset that is stably traded 24 hours a day,
It fell 0.8% to $30,675, a slight decline after reaching a one-year high late last week.
Where can investors turn to for safety when the market is in turmoil?
Final Toe’s Wilson said investors can seek refuge in currency markets where the US dollar is depreciating.
and maybe euros
You can benefit from a spike in demand. More “risk-off” could send investors to very safe Treasuries such as US Treasuries.
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This can help lower your yield. Bond yields move inversely to prices.
Wilson predicted that European indices could be “more exposed to risk elimination due to their proximity and composition to Russia and the war in Ukraine.” He also noted that the crisis could send the S&P 500 and Nasdaq Composite higher if investors decide to seek refuge in high-quality growth companies like Apple Inc.
That’s what helped drive the market rally this year.
Whatever happens, the consequences of the crisis will become more evident in the next 35 hours, Wilson said.
“…[H]If the market opens after the weekend, it will depend on what happens in the next 36 hours…
Still, one of the first to interpret Monday’s market reaction would be Melbourne-based Chris Weston, head of research at online broker Pepperstone.
Until then, he warned investors against reading too far into the situation, as analysts’ visibility into the highly complex geopolitical situation is “poor.”
“A humble market participant will simply say that they have no edge in knowing how this is going, and that the visibility to read this in the market is currently poor. Information is often biased, making it difficult to truly know what is true and what is supplying influence…this is what Will it lead to real systemic change, fail, or perhaps inflame it and lead to a market shock?” Weston said in comments provided to MarketWatch.
“At this point, we simply don’t know, but it seems clear enough about potential outcomes and timelines in the next 24-48 hours. We will be watching crude oil and EU assets most closely,” he said.
In an email to clients, Terry Haines, founder of Pangea Policy, said the ongoing uncertainty brought about by the Wagner rebellion revealed the vulnerability of Putin’s regime and could slightly increase Ukraine’s chances of victory.
However, Haines also conceded that “it is a developing and volatile situation with multiple facets that adds to the geopolitical uncertainty to which markets usually respond negatively.” Investors should also consider that if the insurgency fails, it could cause more instability as it is “replaced by tougher Russian control” or “Wagner disintegrates.”
In the same vein, Bianco Research Director Jim Bianco made a joke aimed at geopolitical analysts suddenly flocking to Twitter.
Adam Kobeissi, editor-in-chief and founder of the Kobeissi Letter, commenting to MarketWatch, sees the crisis as “an optimistic development after some initial volatility.”
“After all, an end to the war in Ukraine is the biggest geopolitical driver for the market right now and if it increases the chances of a peace agreement and/or Russia withdrawing from Ukraine, it is likely to be perceived as bullish over the next few weeks,” he said.
He advised investors to keep an eye on oil and gold prices.
“If this means more conflict, oil
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We are ready to assemble,” he said.
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