Oil rises over $100 as Russia attacks Ukraine

European bourses are set to tumble on the open as Russia attacks military and infrastructure in Kiev, Ukraine’s capital. 

• Stocks tank, the DAX falls into correction territory
• Oil hits an 8-year high over $100
• Gold rises to a 13-month high

Risk sentiment has been dealt a blow as Russian forces attack Ukraine with missiles, hitting several cities including Kiev. According to media reports Russian troops have entered Ukraine after separatists requested Russia’s help, in what Moscow is calling a special military operation. The Ukraine government said that Russia declared war with forces entering from Belarus in the North, Crimea in the South and Russia in the east.

Russian President Vladimir Putin called for Ukraine to lay down their arms. He insisted that Russia was not looking to occupy Ukraine but to defend itself from the threats which were emanating from modern Ukraine. Putin warned foreign powers of consequences if they intervene.

President Biden responded to the move by Russia, calling it unjustified and unprovoked. Biden will meet with G7 leaders today, promising severe and decisive sanctions on Russia.

DAX

The markets have reacted with strong risk off flow. Riskier assets such as stocks are tumbling sharply lower. The Dow Jones fell into correction territory yesterday, trading over 10% lower from its recent high. The DAX has also fallen into correction territory, down some 14% from its all time high reached at the start of the year. 

The DAX has taken out several key support levels and trades at a yearly low. Germany is heavily reliant on Russian energy, any signs of supply slowing could hurt German economic growth and send inflation, which is already at a 3-decade high, even higher.

FTSE

The FTSE is holding up better than some of its European peers and is expected to open down around 3% rather than the 5% selloff expected on the DAX, with the UK index finding support from its 200-day moving average at around the 7200 level. The index trades down around 6% from its recent high. Part of the reason that FTSE is holding up better than its peers is owing to its composition, with heavy weight oil majors, which are expected to get a boost from surging oil prices.

Oil

Questions over whether oil will reach $100 have been answered today as Brent hits $100 for the first time in 8 years and WTI crude oil rises to $98, at the time of writing. Fears of supply disruption, in an already tight market, are sending oil prices sharply northwards. The West may feel that they now have no choice but to apply sanctions on Russian oil now. Or even if they decide that is not a possibility, given Europe’s dependence on Russian energy supplies, Russia could limit supply in retaliation for other sanctions. 

Gold

In times of geopolitical tensions and war gold shines and this time is no different. The price of gold, along with other safe havens such as the Japanese yen and US dollar have jumped. Gold is heading towards $1950 a level last seen over a year ago and has the potential to remain elevated.

Looking ahead US Q4 GDP, jobless claims and Fed speakers are likely to play second fiddle to Russia, Ukraine headlines.