Russia – Ukraine War: Were to next for Rand & Global Markets?

Rand capitulates by over 100c against US dollar - Where to now

Well, the inevitable has become reality. Russia has invaded Ukraine. There is no point in beating about the bush – Russia has initiated a violent, unprovoked conflict, showing their true intentions all along.

While this is a highly charged subject, it is necessary to consider the significant effect it has already had on global economies and markets.

Oil has sky-rocketed. As has Gold, pushing up above $1900 (although it has since reversed sharply).

It has been a such a tumultuous few days, you would hardly remember that SA’s budget speech happened earlier this week, as it paled in comparison to the Middle East conflict. But let’s take a deeper dive and give you an overview of all that happened during the week…

Key Moments (21-25 February 2022)

And to give a brief overview of those key moments:

  • Russia v Ukraine – no longer just a potential threat, but the reality of two major nations at war with one another, and neither wanting to back down
  • Global Market Turmoil – markets do not like uncertainty in any circumstances, but war creates a whole new level of investor panic…
  • Dry Budget – no great shakes, and no crazy plans was the order of the day from SA’s finance minister…but Ratings Agencies did not like this
  • Stock Market Whiplash – markets crashed weaker following Russia’s invasion, but Mr Market turned on his heels again in the second half of the week!

Such was the amount of action that happened in this week, it is now quite hard to believe that it was just 7 days ago that there was hope of a de-escalation of the Russia/Ukraine conflict on Monday morning when the markets opened.

There was talk of a Putin-Biden summit, and things working out…

…as we now know, that idea was absolutely crushed as an impossibility.

But back then, markets were hopeful, and the Rand opened around R15.05 thereabouts.

It was setting up to be a huge week, and no one knew exactly which way it was going to go!

But as tensions continued to drive steadily higher in Ukraine, it became blatantly obvious. And with markets having been waiting for this for some time, you would expect to have had all possibilities of a Russian invasion factored in.

It started with Putin announcing that Russia was recognizing two Eastern rebel-controlled regions of Ukraine as independent, neutral zones, and that troops were going to go in on a peace-keeping mission …but it didn’t last long before that became a full-blown invasion come early Thursday morning.

Hundreds of thousands of troops poured in, tanks, attack helicopters, missiles and shelling accounted for a quickly-climbing number of both military and citizen individuals.

World leaders, NATO and the UN responded with sanctions, and not much more… now caught between a rock and a hard place due to their inaction over the last few weeks, their position was that that they must either enter the war and risk this becoming a larger conflict, or allow Ukraine just to fight it’s own battles and try stay out of it, apart from punishing Russia economically.

Biden sent more troops to neighbouring countries to defend NATO allies, but repeatedly stressed that they would not be firing on Russian soldiers for fear of escalating conflict further, setting the US at war with Russia.

A combination of a fear of standing up to Russia has lead to this conflict, as they have edged closer and closer and closer to see how far they could go – essentially allowing them to have every unit in place before starting the invasion, without suffering a single consequence until actually ‘pulling the trigger’.

The weakness of Administration in the West (and especially the US since Trump left) is all too evident. At is not only Russia watching this, but China too… Getting back to the markets though, there was some serious reactions come Thursday!

USD/ZAR

USD/RUB

EUR/USD

And this was not even the half of it, as stock markets went for a tumble, to put it mildly!

On top of that was Oil, soaring through to over $100 a barrel, before coming off again on Friday to break closer to $90… …whew!

And then in other news:

  • In the midst of the week had actually been Enoch Godongwana’s chance to put his stamp on the country’s finances with his first budget speech. The speech on the whole was rather dry according to most, with nothing ground-breaking, no crazy or extravagant plans…but also a real lack of the energy needed to dig the country out of it’s hole. You can view the key points discussed over here, and while Godongwana’s feeling was that the tide was turning, perhaps what is most important was the Ratings Agencies’ response to what he had to say. As described by Fin24, Fitch “poured cold water” on Godongwana’s budget by expressing their doubts that the Treasury has the ability to contain government spending pressures. With Ramaphosa being desperate for more investment, this is not the kind of response that the country needed…
  • Come Friday, the whole sentiment of the markets had changed again, as the stocks whiplashed back with the Dow climbing more than 800 points by the afternoon of US Trade. It was just staggering to analysts to see this kind of determination amongst investors even at such an uneasy time…but in the back of everyone’s mind was also the old adage of a ‘dead-cat bounce’, where the market trend has actually changed, but bounces one last time, before falling further…the next few days are going to be very interesting!

And getting back to the Rand, Friday also saw recovery from Thursday’s antics where the local unit had toughed upwards of R15.50 …to trade as strong as R15.10 on Friday!

This was despite Russia making further advances toward and into the capital Kyiv’s surrounding areas, with Kyiv’s mayor warning on Friday evening that Russian troops were “very close to the capital” and predicted “a difficult night” for the city.

Late Friday, NATO activated the Response Force for the the first time, meaning that the alliance will deploy more troops to eastern Europe to protect NATO countries. It was a constantly changing and uncertain situation, as we looked ahead to what the days ahead would bring for the markets…

The Week Ahead (28 Feb – 4 Mar 2022)

Well, well can you believe it – March is already at our doors.

And what a February it has been – could things possibly get more volatile in March?

Apart from the Russia & Ukraine conflict – and how this continues to pan out – there are some other significant triggers that we do not want to forget in the week ahead:

  • US – Jobless Claims, Biden’s State of the Union, Goods Trade Balance, Fed Chair Testimony, Non Farm Payrolls, Unemployment Rate
  • SA – Balance of Trade

Bottomline:- Strap on your seatbelts, this could be a humdinger of a week, and expect the Rand to be at its volatile best!

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