Russian forces’ assault on Ukrainian territory early Thursday was accompanied by air and missile attacks across the country. It all adds up to the worst-case scenario so far contemplated by analysts, investors, and, most of all, Ukrainians themselves.
Markets were quick to price in the escalation, with stocks in the S&P Europe 350 slumping 2.5% at the open. Economically sensitive industries like banking, car makers and industrials underperformed, though the worst-hit stocks in the region were those exposed to Russia and Ukraine.
They included Polish retailers LPP (LPP, -22%) and Allegro.eu (ALE, -10%), banks Pekao and PKO (PKO, -9%) and Eastern Europe-focused budget airline Wizz Air (WIZZ, -8%). Anglo-Russian miner Polymetal International (POLY) nosedived 27%, marking the worst performance in the benchmark.
With losses in Asian and European stock markets already realized, a deep-red open still laid ahead for U.S. stocks as of 9 a.m. Eastern. S&P 500 futures pointed to a 2.5% decline, while contracts on the Nasdaq 100 Index were 3% lower. Following its 18% slump this year amid a tech stock correction, a further decline by 2% would push the Nasdaq into bear market territory, defined as a 20% decline from its most recent high.
"For markets generally, we are now in a period of high uncertainty with very limited visibility of how the situation will play out,'' Morningstar senior equity analyst Michael Field wrote in a note on Thursday. "The obvious and immediate effects of the invasion could be an acceleration in inflationary pressures, particularly on food and energy costs.''
Unsurprisingly, the fallout in Russia itself dwarfed losses in Europe, as plunging banks and energy firms dragged the country's MOEX benchmark 19% lower. Gazprom (GAZP, -51%), Lukoil (LKOH, -40%) and Sberbank (SBER, -50%) weighed on the index the most, while the ruble fell as much as 10% to a record-low.
Concerns over supply disruptions fired up energy markets, meanwhile, pushing Brent crude oil futures above the $100 mark for the first time since 2014. Natural gas, where Russian supplies account for an even greater share of the total, skyrocketed by as much as 30% in futures trading on London’s Intercontinental Exchange.
Combined, those moves helped cushion declines among energy majors including Shell (SHEL, -1%), BP (BP., -4%) and Eni (ENI, -2%). Outside energy, defensive industries including real estate, food makers and utilities were the least badly hit among stocks as investors fled toward haven assets.
Outliers
As part of the risk-off tilt in trading, German bunds and 10-year US treasuries each gained about 0.5% while spot gold climbed as much as 2%. Settling the recent debate regarding whether Bitcoin has become a haven asset – or even a gold proxy – the cryptocurrency slumped 5% to its lowest point since January.
A curious outlier on Thursday morning were renewable energy stocks, which tend to underperform as investors flee from risk, but stand to benefit from reduced fossil fuel supplies. Orsted (ORSTED +0.1%), Vestas (VWS, -1%), Nordex (NDX1, -0.3%) and Siemens Gamesa (SGRE, -1.7%) were clear outperformers.
