US and European stock futures are sliding today, but bonds and commodities such as oil are moving higher. Markets are likely to see heightened volatility today, given that we heard stricter penalties against Russia for its invasion of Ukraine over the weekend. The US and Europe imposed their harshest economic penalties over the weekend by banning key Russian banks from the primary global payments system SWIFT and a slew of other measures to limit Moscow’s use of a $630 billion war fund.
The impact of Russia’s strike on Ukraine is being felt worldwide, with shocking images of what is fast becoming Europe’s most severe conflict since 1945. Western governments are tightening sanctions against Russia as Ukraine struggles for survival. They understand that by doing so, they risk damaging a solid economic recovery at the same time as Covid limitations are being eased.
A harder Western reaction to Russia’s assault of Ukraine, as well as interruption in Russia’s oil and gas supplies, would cause an even greater energy shock and a massive hit to world markets. This would effectively rule out ECB rate hikes this year, while the Federal Reserve’s tightening would be slowed.
This is an important week in terms of economic data as we will see the US NFP number hitting the tape towards the end of this week. Before that, we have the ECB’s February meeting minutes, which will be scrutinized for clues as to how battle lines were drawn ahead of the March meeting. President Christine Lagarde avoided announcing the ECB would not raise interest rates this year at the meeting.
Headline inflation in the eurozone will likely reach its highest level since the euro’s foundation, owing to a surge in energy prices. The number is expected to beat the European Central Bank’s first-quarter prediction.
After Western countries slapped more sanctions on Russia for invading Ukraine, President Vladimir Putin put his country’s nuclear deterrent on high alert. Gold prices surged more than 1% on Monday, putting it on track for its highest monthly gain in nine months.
On Sunday, European countries and Canada took the unusual step of closing their airspace to Russian planes to pressure Putin to cease his invasion of Ukraine.
On Sunday, Russia’s central bank announced that it would resume buying gold on the domestic market on February 28 as part of its efforts to maintain financial stability in the face of Western sanctions against Moscow.
Oil prices are rising today as markets digest the news of US and Western allies imposing sanctions on certain Russian banks, raising concerns that the energy supply will be harmed indirectly. Russia is a significant supplier of oil and gas, mainly to Europe. While the current set of penalties does not directly target energy, analysts believe substantial ramifications will be. Russian petroleum sales are currently extremely difficult due to multiple banking sanctions. Most banks will not offer basic financing because of the risk of falling foul of sanctions.
The main danger here is a disruption in the energy supply. Russian President Vladimir Putin might even opt to use energy as a weapon and shut off the taps directly in retaliation for the US and its allies’ actions.
On Monday morning, the Russian Ruble hit an all-time low against the dollar as markets evaluated the effects of sanctions on Russia amid a mounting backlash to the Kremlin’s invasion of Ukraine.
As offshore trading began in the morning around Asia hours, the Ruble was trading as low as 119 per cent, down from almost 84 per cent the day before.
As part of its efforts to minimize the financial market damage, Russia’s central bank revealed that its brokers had been prevented from carrying out sell orders from foreigners on Monday. It also announced that 733 billion Rubles ($8.78 billion) in local bank reserves would be released to help increase liquidity.
Over the weekend, reports surfaced of Russians waiting in huge queues to withdraw cash from ATMs.
The European Union announced new moves on Sunday in reaction to Russia’s invasion of Ukraine, including funding the transport of weaponry to the embattled country for the first time.
According to von der Leyen, the EU will also prohibit Russian planes from flying over EU territory and Russian state-owned media outlets Russia Today and Sputnik from broadcasting on its airwaves.