Geopolitical Crisis, What is At Stake?

  • 2022-02-22 12:48:12
  • 5 min read
Geo Crisis Final

For two weeks in a row, stocks in the US have lost ground, With the Dow Jones Industrial Average DJIA falling 1.9%, S&P 500 SPX -0 .72% losing 1.6%, and Nasdaq Composite COMP dropping 1.8%. Treasury yields fell as investors sought out assets viewed as havens during periods of geopolitical uncertainty or fear for safety which also helped fuel gold GC00 rise by about -0.49 percent.

Though the latest Ukraine crisis has so far failed to provide any benefit for oil, invasion fears were credited last week with driving both the U.S and global benchmarks up near $100-a barrel levels not far below what many consider a hazardous psychological barrier: one that could mark a significant downturn in the market share if crossed again soon enough. Instead, the likelihood of a resurrected nuclear deal, sparked profit-taking, with crude futures ending an eight-week winning streak.

So, what happens in case of further geopolitical escalation?

The focus for investors would be on energy prices, with analysts predicting that crude oil will continue to rise above $100 per barrel.

With oil prices at multi-year highs due to misaligned supply and demand dynamics, "further tension could mean more upside potential (north of $100) or negatively impacting both the US economy as well as global markets." said Larry Adam Chief Investment Officer for Raymond James' Private Client Group in a note.

According to multiple analysts, the main cause of financial market turbulence would be a spike in energy prices in Europe and around the world.

As for Gold, the precious metal price has been on a roll with an impressive rebound from the $1,850 level. It has already recaptured its three-month highs ($1880) and is forecasted to continue to climb higher due to heightened geological tensions. Optimism however that the tensions might ease might send the price lower, though not sustainable as Wall Street remains confident that the US Federal Reserve won’t overtighten its policy this year.

The coming few days will be key in determining whether geopolitical fears can overshadow encouraging economic data and the expectations that the Fed will raise the benchmark rate in the next March meeting to contain inflation. 

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