NEW YORK, March 1 ― The Russian rouble hit record lows yesterday while world stocks slid and oil prices jumped after the West ramped up sanctions against Moscow over its invasion of Ukraine, including blocking Russian banks from the SWIFT global payments system.
Russia's central bank hiked its key interest rate to 20 per cent from 9.5 per cent and introduced some capital controls to bolster the rouble and fight inflation. Authorities ordered exporting companies to sell 80 per cent of their foreign revenues as the rouble slid as much as 32 per cent before recouping some losses.
The European arm of Sberbank, Russia's biggest lender, faces failure, the European Central Bank (ECB) said, an early sign of a looming economic crisis in Russia.
The fallout from tougher sanctions also rippled across financial markets outside Russia, especially in Europe where the main German and French bourses fell more than 3 per cent in early trade but later pared most of those losses.
European banks were hit hard, with those most exposed to Russia, including Austria's Raiffeisen Bank, UniCredit and Societe Generale, falling between 9.5 per cent and 14 per cent. The wider euro zone index of 22 major banks lost 5.7 per cent, but the pan-regional STOXX 600 stock index closed down a scant 0.09 per cent as sentiment improved at its close.
However, talks on a ceasefire ended without a breakthrough and a member of the Ukrainian delegation said the discussions were difficult as the Russian side was biased, news that darkened the mood on Wall Street.
The Dow Jones Industrial Average closed down 0.49 per cent and the S&P 500 lost 0.25 per cent. The Nasdaq Composite rebounded, adding 0.41 per cent, as investors bet the Federal Reserve will be less aggressive hiking interest rates. MSCI's all-country world equity index closed down 0.077 per cent.
Markets are likely to remain choppy in the near term, analysts said. While valuations have fallen and some risks have been priced into the market, it's not time to derisk, Solita Marcelli, chief investment office for the Americas at UBS Global Weather Management, told clients in a note.
“Investors trying to trade off geopolitical events can easily get whipsawed,” Marcelli said, noting that sell-offs based on geopolitical events have been brief in the past.
Oil prices surged after Russian President Vladimir Putin on Sunday put nuclear-armed forces on high alert.
The ramp-up in tensions heightened fears that oil supplies from the world's second-largest producer could be disrupted, sending Brent crude futures to settle up US$3.06 (RM12.8) at US$100.99 a barrel. US oil settled up 4.5 per cent at US$95.72 a barrel, after topping US$100 last week, their highest since 2014.
The White House said it hasn't ruled out restrictions on US purchases of Russian oil and gas.
The global economy faces significant economic and financial turmoil in Russia, the world's 11th largest economy, that will spill across its borders, analysts warned.
Even if Western governments allow the purchase of oil and gas from Russia, markets need to digest the disruption to hedging contracts, insurance coverage and energy markets, said Christopher Smart, chief global strategist at Barings Investment Institute.
“If Russian entities are effectively blocked from exchanging their money into the world's reserves currencies, will the Russian government allow the foreign debts to be paid?” he said.
Safe havens shine
As uncertainty continued to grip markets, investors sought the safety of the dollar, Swiss franc and Japanese yen.
The euro fell 0.48 per cent to US$1.1213, while the yen strengthened 0.55 per cent to 114.92 per dollar. The ruble fell to 101.40, down about 20 per cent on the day.
Government debt, such as US Treasuries and German Bunds, which are considered among the safest global assets, were in strong demand.
The 10-year Treasury yield fell 15.6 basis points at 1.828 per cent, down from a high of more than 2 per cent on Friday, while equivalent German yields slid 4.7 basis points to 0.109 per cent.
Money markets continued to push back rate hike expectations with investors now pricing roughly 30 basis points (bps) worth of tightening from the European Central Bank in total this year, down from 35 bps late last week.
Bitcoin rose 10.43 per cent to US$41,645.99.
US gold futures settled up 0.7 per cent at US$1,900.70 an ounce. Prices for palladium, used by automakers for catalytic converters, rose 5.1 per cent to US$2,488.20. Russia's Nornickel is the world's largest supplier of palladium.
MSCI's Russia equity index slid 25.5 per cent, while London and Frankfurt-listed Russian equity exchange traded funds (ETFs) tanked between 37 per cent and 53 per cent as investors dumped Russian assets. ― Reuters