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BOOK YOUR FREE STRATEGY SESSION NOW >>For those of us who deal in investments, events such as the war in Ukraine can cause a certain amount of apprehension, which obviously adds to the great concern we’re all feeling at the moment.
Many traders, in particular, are wondering what impact the war will have on the financial markets and what will be the outcome of this geopolitical situation.
In today's video we’re going to talk about how the markets are moving and how volatility is evolving in light of the sanctions imposed on Russia.
By watching the video you'll learn about:
- The performance of commodities, in particular energy commodities (including gas, especially European gas, and coal)
- The performance of metals, cereals and currencies, with particular attention to the Dollar-Ruble exchange rate
- The overall volatility situation and Vix values
- The fall in the S&P500 Index in connection with other geopolitical events
Hello everyone and welcome.
I'm Francesco Placci and in this video I would like to try to give an overview of the current market situation with particular reference to the impact of the ongoing war between Russia and Ukraine.
I sincerely hope that by the time you watch this video that the situation has already been resolved for the best and I must admit that this topic is a bit difficult to approach, and given the current situation the markets are certainly not my first thought. However, it is also true that as an investor I have a certain concern arising from the uncertainty of the geopolitical situation and I imagine that many of you also wonder how this situation can impact the financial markets.
So where do we go from here? We can start from the movements of recent weeks on the primary markets.
Here we see commodities. It’s clear that every conflict involves the markets which are linked to the geopolitical situation of the moment. And in this specific case, the greatest impact concerns primarily raw materials, in particular energy raw materials.
As you can see they have risen a lot over the last few weeks on a monthly basis but also since the beginning of the war. Which ones went up the most? Certainly those related to oil, in particular also gas, coal, and especially European gas, therefore TTF Gas and UK Gas, which rose over the last month by about 37%.
But that's not all. Important increases are seen on a monthly basis also on metals, in particular lithium. Less so are the precious metals that usually serve as a good safe haven. There's also a notable impact on agricultural raw materials, wheat in particular. Russia and Ukraine are major producers of this raw material.
Let’s look now at the prices of European natural gas, TTF Gas, compared to American natural gas. So the European gas, the green one, you can see how since the beginning of the war, for a year now, the price has risen decidedly more than American natural gas.
It also rose following the outbreak of the invasion because there was an increase from 74 to 131. It is true, however, that there was already a strong tension surrounding this raw material, because if we look at the prices around December 2021 they were almost 180.
So the war in a way has exacerbated a tension that already existed on this raw material.
In this graph I want to show you two underlying assets that are very different from each other. Let's talk about wheat and the USD against the Ruble exchange rate. Both of them have risen a lot since the beginning of the invasion.
Of course the Dollar-Ruble exchange rate has gone up a lot. So the Ruble has been devalued due to the heavy economic sanctions that have been imposed on Russia.
Both like I said, went up. As far as wheat is concerned, this is a more medium-term trend that, together with all the other raw materials that are generally growing, fuel this strong inflation that we are experiencing.
Now let's take a look at the prices of the S&P 500 and see how since the outbreak of the war the market has actually fallen but it was already in a downtrend that had started a prior, at least a month before, and all in all I would say that the impact on stock indexes has actually been less than what would have been expected.
To expand on this, I want to show you a study made by JP Morgan (I apologize for the quality of the image) which relates the size of the decline of the S&P 500 with several geopolitical events, with several wars that took place from 1973 until 2014.
It's quite evident that all in all the market downturns have been fairly contained. Obviously it is a historical analysis that in a way should be taken with a grain of salt because no one can predict what will happen in the short term, or if there will be an escalation, of course we hope not.
And so it is simply a way of pointing out that at least historically the impact of geopolitical conflicts has not been particularly excessive in relation to the stock markets.
What we can be sure of is that the current sanctions against Russia will lead to tensions, especially on the labor market and on global economic growth.
And this makes us "hope", so to speak, that the central banks that have historically always intervened to support the economy will delay the rate increase that is already notable within the bond market. It's in the order of 6 or 7 increases in rates, and these could delay. And that's why bonds have gone up a little bit in the last period and the stock market probably hasn't gone down as much as you'd expect.
Another aspect that we can assume during these times is volatility, which at the moment appears to be quite strong. If we take a look at the Nasdaq, for example, we see rather large daily ranges, even if the term structure of implied volatility is not as high as might be expected.
The Vix is actually at a fairly significant value. It reached almost 40 but nothing like what we saw during the pandemic. So at the moment there is tension, there is volatility in the markets, but nothing close to the crisis we experienced during 2020.
Anyway, the volatility is likely to remain high. There will certainly be a decline in investors' appetite for risk, so there will be a period of "risk aversion" and there will probably also be a greater weakness in the European markets than in the US, especially on the stock markets.
Beyond the forecasts, however, which frankly should be considered within their own context, as I said, it is practically impossible to predict the future course of this conflict. What we all hope for, however, is a rapid and peaceful resolution in the shortest possible time.
We'll help you map out a plan to fix the problems in your trading and get you to the next level. Answer a few questions on our application and then choose a time that works for you.
BOOK YOUR FREE STRATEGY SESSION NOW >>Hi, I'm Francesco Placci, a professional trader since 2005 thanks to the systematic approach to the markets.
My skills range from trading on index futures to bonds, from stocks to commodities, with a particular focus on volatility and options, which I consider to be among the most versatile and fascinating instruments available to traders.
After an experience with leading Italian credit institutions where I learned the basics of institutional finance, I became a successful independent trader, with great personal satisfaction.
Founder of Algoritmica.pro, in 2019 I joined Unger Academy as head of Research and Development.
