Equity markets, ruble fall as West isolates Russia: markets wrap

Equities slid Monday, sovereign bonds rallied and commodities including oil surged amid heightened uncertainty after Western nations escalated sanctions on Russia for the invasion of Ukraine.

Europe’s Stoxx 600 tumbled, with most sectors in the red. US futures also shed at least 1%. Oil, natural gas, wheat and palladium jumped, with Brent crude again soaring above $101 a barrel on fears of commodity-supply disruptions.

Rallies in a dollar gauge, gold and Treasuries underlined the demand for havens. The euro fell on worries about risks for Europe’s economy, which relies on Russian energy. An Asia-Pacific equity index ticked up.

The fresh Western penalties further isolate commodity-rich Russia from global finance by seeking to prevent its central bank from using foreign reserves to blunt sanctions. They also exclude some Russian lenders from the SWIFT messaging system that underpins trillions of dollars worth of transactions.

Doubts are now growing about the Bank of Russia’s ability to backstop Russia’s financial system. The nation hiked interest rates to 20% from 9.5%, mandated sales of foreign-currency revenue by exporters and temporarily banned non-residents from selling securities. The ruble fell 8% at the open in Moscow.

There’s speculation that monetary authorities may have to supply markets with dollars to fill holes in global banking created by the SWIFT step.

The escalating Ukraine conflict and more severe Western sanctions are roiling markets. The hostilities threaten to stoke inflation by imperiling flows of key resources such as grains, energy and metals, exacerbating the pandemic-era price pressures that were already weighing on world growth.

A key question is how all this may affect the Federal Reserve’s plan for a series of interest-rate hikes starting in March. Markets now see smaller chances of an aggressive Fed liftoff, and anticipate just under six hikes in 2022.

“We’re just a few days into a kind of once-in-a-lifetime reorientation in the global order,” Homin Lee, Asia macro strategist as Lombard Odier, said on Bloomberg Television. “This transition is not going to be a smooth one” and uncertainties will remain very high in the next few weeks, he said.

In Russia, citizens were lining up at cash machines around the country to withdraw foreign currency, fearful of a ruble collapse. Russian bonds were cut to below investment grade by S&P Global Ratings on Friday.

Meanwhile, BP Plc will exit its shareholding in Russia’s largest oil company Rosneft PJSC, potentially taking a financial hit of as much as $25 billion. Norway plans to excise Russian assets from its $1.3 trillion sovereign wealth fund.

Ukraine’s President Volodymyr Zelenskiy voiced skepticism about talks between Ukrainian and Russian officials at the Belarus border that could get underway within hours. The Washington Post reported that Belarus is preparing to send troops into Ukraine as soon as Monday to help its ally Moscow.

The conflict is “likely to boost energy prices significantly, resulting in immediate inflationary effects and a large drag on global growth,” Silvia Dall’Angelo, senior economist at Federated Hermes, wrote in a note. “It’s fair to say that the crisis increases the room for central banks’ policy mistakes.”

What to watch this week:

• President Joe Biden State of the Union address, Tuesday
• Reserve Bank of Australia policy decision, Tuesday
• Fed Chair Jerome Powell testifies to Congress on monetary policy, Wednesday and Thursday
• OPEC+ meeting, Wednesday
• Eurozone CPI, Wednesday
• Bank of Canada rate decision, Wednesday
• ECB publishes the account of its February meeting, Thursday
• US unemployment, nonfarm payrolls, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 1.1% as of 8:10 a.m. London time
• Futures on the S&P 500 fell 1.4%
• Futures on the Nasdaq 100 fell 1.2%
• Futures on the Dow Jones Industrial Average fell 1%
• The MSCI Asia Pacific Index rose 1%
• The MSCI Emerging Markets Index rose 1.5%

Currencies

• The Bloomberg Dollar Spot Index rose 0.5%
• The euro fell 0.8% to $1.1175
• The Japanese yen was unchanged at 115.55 per dollar
• The offshore yuan was little changed at 6.3122 per dollar
• The British pound fell 0.3% to $1.3363

Bonds

• The yield on 10-year Treasuries declined five basis points to 1.91%
• Germany’s 10-year yield declined six basis points to 0.17%
• Britain’s 10-year yield declined one basis point to 1.44%

Commodities

• Brent crude rose 3.6% to $101.50 a barrel
• Spot gold rose 0.4% to $1 897.33 an ounce