Schwab’s Quick Take: Russia Invades Ukraine

Markets have already reacted to the threat of a Russian invasion of Ukraine in a textbook manner akin to prior similar events that we have outlined in prior articles on January 31 and February 22. Today they are further reacting to the potential for spillover effects as financial conditions tighten and inflation pressures increase. Markets are also reacting to signs of more troops being deployed to NATO member states that border Russia and may expect a powerful U.S. sanctions response and subsequent Russian retaliation. Here are our latest thoughts.

    • A wider war involving NATO or the U.S. is highly unlikely, with all major powers making it clear this isn’t in the cards.
    • Cyberattacks are more likely than a nuclear response by Russia. Russian President Vladimir Putin warned against foreign interference in Ukraine, with some implying he means nuclear weapons could be used given the phrase “never seen in history” when referring to Russia’s response. However, it is far more likely he is referring to some sort of asymmetric response such as cyberattacks. This isn’t really a new risk; Russia has been at the forefront of cyberattacks in the U.S. and Europe for some time. His comment may also imply cutting off energy and gas supplies to Europe.