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September 21, 2022

On International Peace Day, Russia expands its aggression into Ukraine

Every year people around the world celebrate International Peace Day on 21 September. While this year International Peace Day was observed on the 15th of September, many countries are celebrating it today.  The United Nations General Assembly has declared this day to be a moment dedicated to strengthening peace advocacy and fighting racial tension. This celebration manifests itself through observing 24 hours of non-violence and cease-fire every year.

This year International Peace Day is particularly concerning, as Vladimir Putin, the President of Russia, on Wednesday September the 21st ordered Russia first mobilization of reservist forces since WW2, de facto escalating the conflict in Ukraine to a new dangerous level. This is a tragic decision and according to many geopolitical leaders the only card Mr. Putin can play given that he is losing the war against Ukraine. He is also escalating the rhetoric at home justifying this escalation as the only way to prevent a Western invasion of Russia.

The markets reactions

European and Asian stock markets corrected further on Wednesday, and investors shifted into safe-haven bonds, pushing yields on German, French and U.S. government debt down. The Russian stock market lost over 13% over the past two days as President Vladimir Putin announced its war plans. Brent crude and West Texas Intermediate (WTI) prices jumped 2% on Wednesday, based on concerns that the conflict could constraint short to medium term oil supply. JPMorgan anticipates that oil prices are headed to $150 a barrel as demand will continue outpacing supply through 2022-2023. Brent crude oil rose to about $94 a barrel Wednesday. The dollar appreciated further to 20 years high as the markets expected a further interest rate increase of 0,75% on Wednesday. Furthermore, the US currency is still the safest currency particularly during times of crises. However, some of the appreciation is also attributable to Mr. Putin’s announcement and threats as investors dropped the Euro and the UK Sterling and replaced them with the safer greenback.

Naturally Mr. Putin military escalation, sends a long-term negative message to markets as there is an increase of his bellicose efforts. However, the global markets may have priced in part of Mr. Putin war threats, interpreting this escalation as a measure of last resort, and a sign of Russia weakness. In other words, Mr. Putin is starting to realize that it will not win this war easily. Plus, he is seeking to use his augmented aggression as leverage in crisis negotiations going forward. The nuclear threat will keep the market jittery, with high stocks and commodity volatility throughout the next two quarters, particularly if the bellicose rhetoric continues.

What to expect next?

While the rest of the world honors this important day to reflect and learn from all the horrible wars that could have been avoided, President Putin escalates his aggression into Ukraine and uses the nuclear threat. This is not just an assault to the Ukrainians but is an attack against all, including the Russian people. President Putin cannot win the war, and the Russian people will pay a very high price for the foreseeable future regardless of Mr. Putin’s future role in Russia. From the market and broader economic stand points, we will continue to experience high volatility with upper pressure on commodity, food, and energy prices. The economic recovery could be further affected, and recessionary risk may increase particularly in the European market which is highly dependent on Russia oil and gas.

Despite the horrible war escalation, let’s hope we can all honor International Peace Day as an essential moment for reflection to build future prosperity and international cooperation. We all have a role to play in fostering peace, both in business, nonprofit and in politics.

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