Russia escalated the Ukraine conflict with its invasion offensive, shaking the world but also the financial markets. Risky financial assets declined, especially in Europe and Asia, while safe assets increased. The stock markets in Asia lost 2-3 percent, while Europe closed almost 4 percent in the red. The American stock markets, on the other hand, were little impressed and even gained. Crude oil and natural gas prices also rose. A barrel of North Sea Brent crude oil cost well over 100 US dollars at times, but was trading just below the 100 US dollar mark again in the evening. The precious metal gold fared similarly. At times, the fine ounce cost more than 1970 US dollars, but by the end of the day it was trading at 1900 US dollars again. Bonds, on the other hand, remained in demand - interest rates worldwide fell significantly.
However, Russian financial assets were hit the hardest by the escalation. Russian shares lost more than 30 percent and Russian bonds denominated in US dollars fell by around 40 percent. The Russian financial market thus reflects the view that the economic consequences of the escalation will be more severe for Russia than for the global economy. This is not unfounded. Around half of Russian exports go to the EU, while the European Union only trades 5 percent of its goods with Russia. Higher oil prices, on the other hand, could prove more problematic for the global economy. If oil prices remain sustainably higher, this is likely to keep inflation rates high. This would increase the risk of central banks and financial markets getting into trouble. This scenario has not yet materialised, but the probability has increased.