Oil prices soared past $100 and safe havens rallied while equities tumbled Thursday after Russian President Vladimir Putin sent forces into Ukraine, accelerating fears of a major war in eastern Europe.
After weeks of warnings from the United States and other powers, the Kremlin — which is said to have around 200,000 lined up — ordered a wide-ranging offensive into its neighbour, days after saying it would provide “peacekeepers” to two breakaway regions.
The Russian president said in a surprise statement on television: “I have made the decision of a military operation.”
He also vowed retaliation against anyone who interfered and called on the Ukraine military to lay down its arms.
There were later reports of incursions from several directions, with Ukraine’s border guard service saying Russian tanks and other heavy equipment crossed the frontier.
The news sparked a furious reaction from world leaders and pledges to ramp up sanctions on Moscow.
Oil prices rocketed more than six percent with Brent cruising past $100, for the first time since September 2014, while other commodities including wheat rallied on fears about supplies from the resource-rich region. Aluminium hit a record high.
Safe have assets also surged, with gold hitting a more than one-year high, the Japanese yen piling higher against the dollar and the Swiss franc hitting a five-year high on the euro.
The dollar was up nine percent against the ruble, which has been battered in recent weeks on worries about the impact of sanctions on the Russian economy, while the Moscow Stock Exchange plunged almost 14 percent after suspending trading earlier in the day.
The country’s central bank said it was intervening to “stabilise the situation”.
Asian equities plunged, with Hong Kong, Sydney, Mumbai, Singapore and Wellington down at least three percent, while Seoul, Taipei, Bangkok and Manila fell more than two percent. There were also steep losses in Tokyo, Shanghai and Jakarta.
London lost more than two percent at the open while Paris and Frankfurt lost more than four percent.
“It is hard to find any reasons for the selloff to reverse now that it appears the tanks are rolling,” said OANDA’s Jeffrey Halley.
“Stronger sanctions are to come on Russia and energy prices will inevitably head higher in the short term.”
Ukrainian President Volodymyr Zelensky had earlier warned Russia could start “a major war in Europe” in the coming days.
US President Joe Biden deplored the Russian operation as an “unprovoked and unjustified” attack, adding that it would cause “catastrophic loss of life and human suffering”. Further stringent sanctions would be announced, he said.
He was joined by leaders around the world, with NATO ambassadors holding an urgent meeting and the European Union saying Moscow would face “unprecedented isolation”.
Earlier, the United Nations was told a full-scale Russian invasion would have a devastating global impact that would likely spark a new “refugee crisis”.
China called for “restraint” on all sides.
“Russia/Ukraine tensions bring both a possible demand shock (for Europe), and more importantly a much larger supply shock for the rest of the world given the importance of Russia and Ukraine to energy, hard commodities and soft commodities,” said National Australia Bank’s Tapas Strickland.
The crisis comes as governments struggle to contain runaway inflation fuelled by demand as life returns after recent Covid-19 lockdowns, with many fearing the fragile global economic recovery from the pandemic could be knocked off course.
After staging a slight bounce Wednesday in reaction to what were considered light sanctions against Moscow, Asian markets were back in the red after a hefty drop on Wall Street.
– ‘Policy mistakes’ –
The stand-off in Europe has provided central banks with a further headache as they move to lift pandemic-era financial support and tighten monetary policy.
Attention is on every utterance from Federal Reserve officials as they prepare to hike interest rates next month, with speculation over how fast and hard it will move.
Commentators said bets are on six increases this year, down from previous forecasts for up to seven, adding the stakes are rising further.
“Policy mistakes at this point in time are almost guaranteed,” Shana Sissel of Banrion Capital Management told Bloomberg Television.
“The question isn’t, ‘Is there going to be a policy mistake?’, but, ‘How bad will it be? Will the Fed hike too much too fast, will they front-load everything?'”
And with uncertainty reigning supreme, warnings abound of worse to come, with BNY Mellon Investment Management’s Lale Akoner saying: “Expect volatility to really persist in the next few months.”
Geopolitical risks were flaring at a “very inopportune time”, she added, as traders try to navigate central bank tightening.
– Key figures around 0710 GMT –
Brent North Sea Crude: UP 6.8 percent at $103.38 per barrel
West Texas Intermediate: UP 6.4 percent at $97.97 per barrel
Tokyo – Nikkei 225: DOWN 1.8 percent at 25,970.82 (close)
Hong Kong – Hang Seng Index: DOWN 3.2 percent at 22,901.56 (close)
London – FTSE 100: DOWN 2.7 percent at 7,298.98
Shanghai – Composite: DOWN 1.7 percent at 3,429.96 (close)
Dollar/yen: DOWN at 114.61 yen from 114.96 yen late Wednesday
Euro/dollar: DOWN at $1.1251 from $1.1308
Pound/dollar: DOWN at $1.3478 from $1.3545
Euro/pound: UP at 83.46 pence from 83.41 pence
New York – Dow: DOWN 1.4 percent at 33,131.76 (close)