Markets turbulent as sanctions start to isolate Russia’s economy

Business
By Editor_1
The financial district seen from the Federation tower building in Moscow, Nov. 24, 2021. Measures announced over the weekend aimed at restricting the Russian central bank’s ability to support the ruble appear to be having an immediate impact -Sergey Ponomarev/The New York Times
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NEW YORK – Stocks fell Monday (28) and commodity prices rose as the war in Ukraine entered its fifth day and a widening array of sanctions aimed at punishing Russia for its invasion began to bite.

On Wall Street, the S&P 500 fell 1% in early trading. Stock indexes in Europe were also lower, with the Stoxx Europe 600 down 1.2%.

Banks with major holdings in Russia were among the big losers. UniCredit of Italy fell nearly 12%, and Raiffeisen Bank International in Austria lost 15%. The European Central Bank said that Sberbank Europe, a subsidiary of one of Russia’s biggest banks, was on the verge of collapse Monday as Western sanctions took a toll.

In Russia, the ruble cratered and the Bank of Russia responded by more than doubling its key interest rate to 20% to try to control the damage from the sanctions. The country’s central bank also said it would release about $7 billion worth of bank reserves that had been set aside as a buffer for unsecured consumer and mortgage loans.

Oil prices rose nearly 3%. European natural gas futures rose more than 10%.

As delegations from Kyiv, Ukraine, and Moscow arrived for talks in Belarus, the Russian ruble tumbled as much as 30% against the dollar. Over the weekend, the United States and Western allies announced measures intended to limit the ability of Russia’s central bank to support the currency, a strategy that could eventually saddle the country with spiralling inflation and recession.

Global stock markets had rallied Friday (25) and the S&P 500 ended the week with a small gain, in part because the initial round of sanctions announced against Russia was perceived by the markets as fairly weak.

The sanctions imposed by the United States, European countries and Japan so far include financial measures against Russian elites, banks and nonfinancial companies; bans on technological exports to Russia and on flights by Russian airlines; suspension of the approval process for Russia’s Nord Stream 2 pipeline to Germany; and measures isolating Russia’s biggest banks.

But over a tense weekend, as President Vladimir Putin of Russia put his nuclear forces on a higher level of alert, new sanctions were aimed at isolating Russia’s central bank from the global financial system. In addition, the United States, the European Commission, Britain and Canada agreed to remove some Russian banks from the international system of payments known as SWIFT — a move that essentially bars the banks from international transactions and is seen as a steep escalation of the effort to impose financial penalties on Russia.

Shares of BP, the British oil company, fell about 6% in London after it said Sunday (27) that it would no longer hold its 20% stake in Rosneft, the Russian oil giant. It did not say whether it would sell the shares or abandon them. The decision could lead to a write-down of as much as $25 billion for BP.

Russia produces more than 10 million barrels a day of crude oil, behind only the United States and Saudi Arabia, and its war on Ukraine upset the markets. The price of a barrel of Brent crude, the international bench mark, rose above $105 a barrel Thursday (24) as the Russian onslaught began but fell sharply during the day and remain below $100 a barrel.

The yield on US 10-year Treasury notes, a traditional haven in crises, slipped six basis points to 1.89%.Treasury yields had been rising this year in anticipation of Federal Reserve short-term interest rate increases aimed at combating inflation, but a surge of investor bids during the Ukraine crisis reversed that trend. The yield on the 10-year Treasury note dropped as low as 1.844% Wednesday (23) and jumped as high as 2.0123% Thursday. It ended the week at 1.964%.

-New York Time

 

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