Markets brace for steep declines as Russia-Ukraine crisis deepens

Investors braced for a hot day for Russia, Ukraine and wider global markets which reopened on Tuesday after President Vladimir Putin raised the stakes in a crisis over fears the West could provoke a war major. In a lengthy televised speech, the Russian president recognized his two separate regions of Donetsk and Luhansk in eastern Ukraine as independent entities and said Ukraine was an integral part of Russian history. Tensions have already rocked global markets this year, wiping out tens of billions of dollars in Russian and Ukrainian assets, but Monday’s escalation is set to get worse.

Commonwealth Bank of Australia analysts have told traders that President Putin’s decision to recognize separatist-controlled areas in Ukraine ahead of the start of the Asian Open on Tuesday would heighten already high tensions. The response should come in the form of tough new penalties. Although other measures may take precedence, some of the most drastic measures are the separation of Russian banks from the SWIFT banking system and the complete removal of EU, UK and US mutual funds. holding Russian government bonds.

“To say that tomorrow will be the worst day is probably an understatement,” said Viktor Szabo, emerging markets portfolio manager at Abdon. “I was hoping not to come here, but this is an important step.” Russian markets were still open when Putin announced his decision live on television after a conference call with German and French leaders. The ruble’s loss hit 3.3% as Moscow’s stock market plunged to its lowest level in more than a year, with the dollar-denominated RTS index falling 13.2% and the MOEX index based on the 10.5% Russian ruble.

At the end of last year, a foreigner held just over $43 billion in his OFZ, dubbed bonds denominated in Russian rubles. UK Foreign Secretary Liz Truss tweeted after calling European Union (EU) Foreign Policy Director Joseph Josep: We have agreed to work side by side. Its 10-year OFZ yield on futures pulls Russia is expected to continue higher after peaking at 10.6% on Monday. Russia’s global foreign exchange reserves are the highest in the world at $630 billion, but the cost of insuring government bonds against default has also risen to its highest level since early 2016.

Analysts also warned of broader implications for global market confidence already strained this year, on top of pressure from rapidly rising global borrowing costs. of the S&P 500 fell 1.8%, the Japanese Nikkei Stock Average fell 2.2%, the Nasdaq fell 2.5% and the German DAX% plunged 3.7% in Europe. Demand for traditional safe-haven assets also drove Treasuries higher.

Summary of news:

  • Markets brace for steep declines as Russia-Ukraine crisis deepens
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Christi C. Elwood