(BFM Bourse) – The warning by the White House that an invasion of Ukraine by Russia could occur at any time weighed on Wall Street on Friday evening. The European markets, which still hoped in diplomacy so far, flinch in turn on Monday morning.
The evocation Friday by the President of the United States of the threat of an imminent attack from Russia caused the main European indices to fall by more than 3% on Monday at the start of the session, after having already caused a sharp drop in the American indices on Friday at the close (-1.9% on the S&P 500, -2.8% on the Nasdaq). Around 9:50 a.m., the CAC 40 dropped 3.27% to 6,782.51 points, while the German Dax, the Madrid Ibex or the Milanese FTSE MIB also fell by at least 3% (the British FTSE 100 lost “only” 1.75%), in a re-emergent context of the fall that happened just four weeks ago.
According to the White House, the Russian army is now ready to invade Ukraine at any time if President Vladimir Putin decides. Americans still residing there are therefore called upon to leave the country without delay. “If a Russian attack on Ukraine does occur, it will likely begin with aerial bombardments and missile strikes which could obviously kill civilians, regardless of their nationality. A ground invasion in the aftermath would involve the use of a massive force. With virtually no notice, communications to arrange a departure could be severed and trade routes interrupted,” said Jake Sullivan, national security adviser to President Joe Biden.
The door to discussions is not completely closed, with a visit by the German Chancellor scheduled for this week first to Kiev and then to Moscow, but there is no tangible sign of progress in the diplomatic way. On the contrary, the concrete evocation of the circumstances of an attack, and the assurance that the United States and its allies would respond to them in a “decisive” manner, puts investors back in the face of a risk that they had hitherto put into perspective. Last weekthe CAC 40 had even fleetingly erased all of its losses since the start of the year, despite a new gauge of inflation higher than expected.
The Parisian index is now down 5% compared to the end of 2021, reaching the lowest point reached four weeks ago, when it suffered a fall of nearly 4% already due to geopolitical tensions in Ukraine… before gradually climbing the slope.
The rise in geopolitical risk, or at least the rise in the perception of this risk (which we can assume has not really diminished over the past four weeks), adds to the concerns vis-à-vis inflation and its impact on central bank policy. The agenda for the week remains busy on this side
“In our central scenario, we still believe that diplomatic efforts will eventually lead to an easing of tensions. This may take several months, during which the possibility of flare-ups like the one we are experiencing today will remain high. But we believe that both sides will eventually conclude that the economic and political cost of a conflict would not be worth it: for Russia, harsher sanctions from the West would heavily affect its long-term growth prospects and public opinion could deteriorate rapidly, as illustrated by the protests in Belarus in 2020, in Russia in early 2021 and in Kazakhstan this year,” UBS strategists assess. “The European Union would also suffer significant consequences, given that Russia accounts for almost 40% of its gas imports and 30% of those of oil. As for the United States, the European situation would divert attention from the plans of the President Joe Biden to reinvigorate the U.S. economy, amid declining satisfaction ratings and already high energy prices.”
That said, “a military escalation and the imposition of new sanctions on Russia remain a risk: economic and political calculations have not always prevented conflicts” acknowledges UBS. However, even in the event of an attack, energy flows may not be greatly disrupted, since the energy sector is essential to the Russian economy (nearly 20% of GDP and 40% of tax revenues in 2019). Also “a prolonged interruption of energy exports to Europe would significantly harm the Russian economy”. Possible in the event of a conflict, a prolonged interruption of energy exports therefore appears less likely.
Past a peak at more than 96 dollars, the futures contract on a barrel of Brent fell to 94.36 dollars on Monday morning (-0.08%), while the barrel of Texas crude WTI traded at $93.02 (-0.09%).
On the foreign exchange market, the greenback benefited from its safe haven status, leading to a 0.3% decline in theeuro at $1.1316.
Within the Parisian market, the sudden resurgence of risk aversion weighed on a very large majority of stocks in all sectors. No sample representative of the CAC 40 failed to keep its head above water, and only a handful of stocks across the rest of the rating were in the green, including a much-awaited 3% rebound for Orpea and increases of 6.4% and 5.5% for biotechs MaaT Pharma and NFL Biosciences, respectively.
Conversely, Societe Generale (-6.45%) showed the largest drop in the CAC due to its direct exposure to the Russian market via its subsidiary Rosbank. Companies whose activity is closely linked to the economic cycle were particularly penalized, such asArcelorMittal (-5,6%), Alstom (-5,4%), BNP Paribas Where Renault (-5.1%), the French automotive group being notably the leader of the Russian market via Avtovaz (Lada).
Guillaume Bayre – ©2022 BFM Bourse