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Risk perception concept

by tarimendeksi

Geopolitical crisis pricing… The concept is handled in different dimensions as the perception of crisis varies. In this environment, it is understood that a critical turning point has been entered in the developments regarding Russia. Despite the statements of the US, there is some softening after the news that Russia will continue with diplomacy at the beginning of the week, and that today it has withdrawn some of its soldiers to its bases. The easing of tensions allowed oil and metal prices to cool partially.


Risk and the need for security… There is a market surrounded by fears that Russia will soon invade Ukraine and the expectation of faster rate hikes by the Fed. Naturally, the gravity of geopolitical tensions increased in the short term. It is very normal for the risk trade concept to be directed in this direction. We have seen some cooling in yields, but since the underlying phenomenon is a Fed tightening with inflation, the direction will not change much on a large scale. The dollar continued to gain support from expectations that the Fed will adopt an aggressive policy response to combat high inflation. As a matter of fact, the markets are pricing in a 50 basis point rate hike in March.


Brent oil and gold comparison… Source: Bloomberg


A daily rally of relief… The headlines eased concerns about a major military action and provided a much-needed boost to global risk awareness. Before that, warnings that the Russian army could invade Ukraine at any moment triggered a significant movement in oil prices, opened the horizon of 100 dollars, and highlighted risk aversion in the market concept. A few days will determine the validity of this relaxation effect. If we don’t see anything new, we will have an opportunity to focus on the Fed.


The US has threatened to impose sanctions if Russia orders an invasion, but nothing more than that – Ukraine is not a NATO member and is unlikely to become a NATO member, contrary to Russia’s concerns. The statements of German Chancellor Olaf Scholz in this direction also put this forward. Russia has the cards: the energy supply and the issue of the controversial Nord Stream 2 pipeline, which takes Russian gas directly to Germany and bypasses Ukraine. Putin is implementing some strategies to ensure that some sanctions are lifted and Nord Stream 2 is activated.


Conclusion? It is more likely that Russia will take action to bind up eastern Ukraine, where the Russian population is concentrated, rather than an all-out invasion. A possible conflict has the potential to trigger sudden market movements. For this reason, we cannot say that the risky trade concept has completely disappeared. In the broader concept, a partial occupation can be taken for granted politically, because Ukraine lacks critical natural resources. Therefore, with the effect of hot conflict, hasty trade movements and movements in the wider window will not have the same logic. We see the phenomena that will increase the crisis as Russia’s large-scale invasion, financial sanctions, especially SWIFT, and an expanding energy supply interruption.

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