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Russia's stock markets remained suspended and some bond trading
platforms were no longer showing prices, but dealing in the
major financial centres both in Europe and in Asia overnight was
orderly, albeit jittery.
Losses for the pan-European STOXX 600 were starting to mount
again, with the index down nearly 2% by midsession [.EU]and Wall
Street expected to open around 1% lower in New York later. [.N]
There had initially been gains for mining and oil & gas stocks
but even those had soured and there was a heavy 4% slump in bank
stocks with investors now sensing that interest rate hikes might
now get delayed. [.EU]
Paul Jackson, Global Head of Asset Allocation Research, Invesco
said: "assuming no rapid resolution to this conflict, we fear
that global GDP could be reduced by 0.5%-1.0%."
"That's enough to aggravate the ongoing slowdown but not enough
to produce recession," although he cautioned that some parts of
Europe could see a recession and that inflation was also likely
to stay higher for longer.
High-level talks between Kyiv and Moscow on Monday had ended
with no agreement except to keep talking, and nerves were acute
as a huge Russian armoured column bore down on Kyiv on Tuesday
after lethal shelling of civilian areas in Ukraine's second
largest city Kharkiv.
With Russia one of the world's largest oil and producers, Brent
crude futures were up $4.51, or 4.6%, to $102.75 a barrel. That
was just below a seven-year high of $105.79 hit after Moscow
launched its assault on Ukraine last week. [O/R]
European natural gas prices leapt nearly 15% too. Both oil and
gas prices are now up nearly 60% since fears of an invasion of
Ukraine began to escalate in November.
"The fragile situation in Ukraine and financial and energy
sanctions against Russia will keep the energy crisis stoked and
oil well above $100 per barrel in the near-term and even higher
if the conflict escalates further," Louise Dickson, senior oil
market analyst from Rystad Energy, wrote in a note.
ROUBLE
The sense that the war and higher energy prices could slow the
global economy meant euro zone bond yields continued to fall in
the bond markets as traders further reduced their bets on rate
hikes from the European Central Bank this year.
Benchmark 10-year U.S. Treasury yields were sitting at 1.80% in
European trading having been over 2% less than two weeks ago [GVD/EUR],
while the euro resumed its decline in the currency market. [FRX/]
Momentum in euro zone manufacturing growth had already waned
slightly last month, revised PMI data showed on Tuesday,
although it was still strong and firms said supply chain
constraints had eased.
"Don't let the drop in the headline PMI distract from what
should be viewed as a largely positive month for the euro area
manufacturing sector in February," said Joe Hayes, senior
economist at data compiler IHS Markit said.
Russia's rouble appeared to be stabilising after plunging as
much as 30% to a record 120 per dollar after Western countries
had slapped Russia with the most far-reaching sanctions ever
placed on such an interconnected global economy.
Those measures include cutting Russia's top banks from the SWIFT
international financial network and sanctioning its central bank
in a bid to limit Moscow's ability to deploy its $630 billion of
foreign reserves.
Russia responded on Tuesday by temporarily stopping foreign
investors from selling Russian assets to ensure they take a
"considered decision" Prime Minister Mikhail Mishustin said.
Russia's huge sovereign wealth fund will also be pressed into
action, spending up to 1 trillion roubles ($10.3 billion) to buy
shares in Russian companies, a source close to the government
told Reuters.
Sanctions though mean that the big global banks are now
reluctant to trade with Russian banks and vice versa, which
means there are now effectively two different rouble currency
markets - one in Russia and one internationally.
Traders in London were quoting the rouble at between 101 and 105
per dollar, although it had been around 94 per dollar according
to some local market prices.
More broadly, currency market volatility is at its highest since
late 2020, as measured by a Deutsche Bank index and the rouble
is down almost 30% from its best levels this year.
"Today, the focus will be on whether sanctions/retaliation will
start impacting the commodity flows from Russia, and whether
(Russia's central bank) will step in with more measures to
support the rouble," ING FX analysts wrote in a note to clients.
Trading in Russian stocks meanwhile remain suspended on the
Moscow Exchange and Russian sovereign and corporate bond prices
were not showing on some trading platforms. JPMorgan's
widely-tracked GBI-EM Global Diversified index did still include
Russia's rouble-denominated bonds although Monday's market
plunge had slashed their so-called weighting in the index.
Foreign investors held $20 billion of Russia’s dollar- and
rouble-denominated government debt at the end of last year
according to Russian central bank data while they own just over
$85 billion worth of equities according to the Moscow Exchange.
"A lot of the (global) price action is a function of
uncertainty." said Madison Faller at JPmorgan Private Bank.
(Additional Reporting by Sujata Rao in London; Editing by Chizu
Nomiyama)
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