Investors will start the week nervously digesting the aftermath of a short-lived rebellion by the Wagner mercenary group that weakened Russian President Vladimir Putin.
“As global markets start trading on Monday, investors are eager to see if the short-lived uprising in Russia was just the beginning of a much deeper thunderbolt that will shake geopolitical, economic and market stability in the days and weeks ahead.” Greg Bassuk, CEO of AXS Investments in New York, told MarketWatch via email on Sunday.
US stock index futures edged higher after electronic trading began Sunday night as oil prices rallied. Futures on the Dow Jones Industrial Average YM00 were up 25 points, while S&P 500 ES00 futures were up 0.1% and Nasdaq 100 futures were up 0.2%.
Global equities fell last week as rate hikes by European central banks fueled recession fears. In the US, the S&P 500 SPX ended a streak of five straight weekly gains, while the Dow Jones Industrial Average DJIA and Nasdaq Composite COMP also declined.
See: Russia’s short-lived uprising could have long-term consequences for Putin as questions remain about Prigozhin’s whereabouts
“Real cracks”
While a weakened Russia raises the prospects for a favorable outcome for Ukraine 16 months after Putin’s decision to invade, the potential for further internal conflict in the country with the world’s largest nuclear arsenal is less reassuring, observers noted.
“That raises profound questions. It’s showing real cracks,” US Secretary of State Antony Blinken told CBS News’ Face the Nation Sunday morning.
Putin’s hold on power “certainly seems more uncertain than it was a few days ago,” but there is “no clear candidate who could replace him through elections or a coup,” said Benjamin Friedman, political director at Defense Priorities, a foreign policy think tank in Washington. DC
Still, “the war in Ukraine is weakening Russia in a number of ways, including creating internal strife and dangerously disaffected elites who wield some power,” Friedman told MarketWatch. “The perception of Putin’s fallibility and weakness is growing and creating a reality of its own. This is dangerous for him. It’s hard to predict what additional outbursts of power and instability this could create,” he said.
See: Russia’s short-lived uprising could have long-term ramifications for Putin as questions remain about Prigozhin’s whereabouts
“Bloodbath” of volatility?
AXS Investment’s Bassuk said the further turmoil “could trigger a bloodbath of market volatility as it impacts the war with Ukraine, a shift in the balance between the G-8 superpowers and the already heightened potential for a US recession.” and have worldwide.”
Analysts have warned that a spike in volatility may be overdue. The Cboe Volatility Index VIX, a measure of expected volatility in the S&P 500 over the next 30 days, fell to its lowest level since January 2020 last week, ending below 14 on Friday. Its long-term average is around 20. The subdued performance, The fact that the S&P 500 index is up more than 13% year-to-date is seen as a sign of complacency by some market observers.
Read: Why the stock market rally made “easy money” — and what’s next
Potentially “no event”
But the quick end to the rebellion could make it more of a “non-event” for capital markets when trading resumes, said Marc Chandler, managing director of Bannockburn Global Forex.
While conventional wisdom sees signs of Putin’s weakness, the Russian leader has often been underestimated, he said.
“The war in Ukraine is likely to remain unaffected, and Kiev’s counter-offensive seems rather muted so far. “The risk is that if Kiev resorts to medium- and long-range missiles to hit Russian assets in Crimea and potentially in Russia itself, the war will escalate,” Chandler said.
In the rebellion, led by Wagner Group chief Yevgeny Prigozhin, the mercenary paramilitary force took over Russia’s southern military headquarters in Rostov-on-Don unopposed before marching largely unchallenged towards Moscow. Putin, without naming Prigozhin, accused him of treason.
The advance halted just over 120 miles from the capital before Prigozhin abruptly resigned and signed a deal that provided for his deployment to Belarus and dropped the charges against him for leading an armed insurgency.
As events unfolded on Saturday, analysts warned that continued turmoil could trigger a flight to quality as markets rally again for assets like US Treasury bonds TMUBMUSD10Y, US dollar DXY and other safe havens like Japanese yen USDJPY, Swiss Franc USDCHF and Gold GC00 would open.
The dollar was little changed against its main peers early Sunday night, while gold for August GCQ23 delivery rose 0.2%.
All eyes are on oil
Meanwhile, commodity and financial markets have seen major swings since Russia invaded Ukraine on February 24, 2022.
First and foremost, the invasion triggered a global energy shock. Russia was the third largest producer of crude oil in the world after the USA and Saudi Arabia and a major supplier of natural gas to Western Europe.
Crude oil futures soared immediately after the invasion, with global benchmark Brent crude BRN00 hitting just under $140 a barrel in early March 2022 after closing at $94.05 on the eve of the invasion.
Natural gas prices had also skyrocketed and fears of shortages left European governments struggling to fill stores amid apocalyptic predictions of a harsh 2022-23 winter.
Energy prices then fell again. Crude oil prices are well below pre-invasion levels. And despite waves of sanctions from European and US governments and price caps aimed at curtailing Moscow’s ability to fill its coffers, Russian crude stocks remain resilient.
Oil prices rose Sunday night with WTI gaining 87 cents, or 1.3%, to trade at $70.03 a barrel, while Brent was up 91 cents, or 1.2%, to $74.76 a barrel.
August Brent crude BRNQ23 closed at $73.85 a barrel on Friday, down 3.6% last week. West Texas Intermediate Crude for August Delivery CL00, the US benchmark, fell 3.9% last week to close at $69.16 a barrel on Friday.
Jorge Leon, senior vice president at Rystad Energy, noted that over the past 35 years, geopolitical shocks involving major oil producers have caused crude oil futures to rise by an average of 8% in the five days following the start of the triggering event have (see chart below). ).
A surge of that magnitude is unlikely given how quickly the rebellion was crushed, he said.
“Given that this weekend’s short-lived event in Russia seems to have come to an end, we don’t expect oil prices to rise as sharply next week. However, we believe geopolitical risk has increased given internal instability in Russia,” Leon said in emailed comments.
—Barbara Kollmeyer contributed.