Russian stock market crashed today, declining 13.5% today in a near panic selling. Russian central bank moved swiftly, increasing interest rates by 150bps, the highest hike since 1998 default. The Rubble didn’t fare any better with USDRUB rising to an all time high of 37.
Will this swift market action, gut punch to the Russian economy, threat of sanctions and capital flight be enough to stop Russia or Putin in his tracks in terms of Ukraine?
That wouldn’t be our bet. As a matter of fact, if anything it will make Russia even more determined to go ahead and resolve Ukraine’s situation as they see fit. At the end of the day, Putin doesn’t place as much of an importance on capital markets and the state of the overall economy as the US does. The more important question is, how will this action/reaction impact the US Market.
It’s very clear. Please check our timing section to find out exact what the market is going to do over the next few weeks.
Russian markets plunged Monday morning as investors reacted to the prospect of Western-led economic sanctions aimed at punishing president Vladimir Putin for Russian actions in Crimea.
The selloff prompted the Russian central bank to take aggressive action to try to stabilize the markets. As the ruble sank to new lows against the euro and the dollar, the bank raised interest rate by 150 basis points (1.5 percentage points), lifting it to 7 per cent.
Russia’s benchmark stock market index, the Micex, got battered by 13.5 per cent at one point by near panic selling. All of the big names on the index including Gazprom, the state-controlled natural gas company whose pipelines to Western Europe run through Ukraine, fell sharply. Gazprom was down in line with the market.
Yields on Russia’s 10-year sovereign bonds rose as high as 9 per cent, up sharply from Friday’s close of 8.1 per cent, as debt investors apparently took the view that that the Ukraine crisis could escalate even if there have been no clashes between Ukrainian and Russian troops in Crimea, the largely Russian speaking region in Ukraine’s far south which is the home to Russia’s Black Sea naval fleet.
The Russian selloff came as the leaders of the Group of Seven industrialized countries, Canada among them, released a joint statement “condemning the Russian Federations clear violation of sovereignty and territorial integrity in Ukraine.” On Sunday, the G7 countries halted preparatory meetings for the G8 summit scheduled for Sochi, Russia, the host city of the Winter Olympics, in June. Russia is the eighth member of that group.
The strongly worded G7 statement indicates that the Western countries may be on the verge of launching sanctions of some sort against Russia, though no formal plan had been announced by Monday morning. On Sunday, U.S. secretary state John Kerry, who is to travel to the Ukrainian capital Kiev on Tuesday, said the Western countries are “prepared to put sanctions in place, they’re prepared to isolate Russia economically.”
In a note, Kit Juckes of the French bank Société Générale said: “This weekend’s events will be followed by a lot of uncertainty and further risk aversion as a diplomatic solution is sought….wider scale capital flight from Russia must be a risk. Russia is unlikely to back down on its support of the regional government in Crimea. The important of Ukraine as a line in Europe’s energy supply line and as the point were Russia and the European Union meet, makes the idea that either side just backs down hard to imagine, but equally, provides plenty of incentives to work towards a diplomatic solution.”
The Russian sell-off triggered a smaller selloff of equities in Europe, where the FTSE-100 and the Eurofirst 300 indexes fell by more than 1 per cent. Investors sought safety in commodities rose. Brent crude was up 1.6 per cent and gold rallied strongly, gaining 1.8 per cent, taking its value to almost $1.346 (U.S.).
Economists doubted that the Ukraine crisis would trigger a full-blown emerging market crisis because of the small size of the Ukrainian economy. It is worth 0.2 per cent of global gross domestic product. Still, some countries, notably Russia and Poland, have significant trade ties to Ukraine and Russia has the power to make or break Ukraine’s energy supplies. Ukraine depends on Russia for half of its natural gas supplies and about 20 per cent of the gas consumed in the European Union is delivered through pipelines that cross the Ukraine.
The fear among Ukrainians is that Russia will use gas supplies as a geopolitical threat. Russia has reduced out outright eliminated supplies to Russia several times in the last decade over gas pricing and contract disputes.
The Financial Times reported that, over the weekend, Russia signalled that it might use gas exports to apply pressure on the interim government on Kiev. Gazprom, the world’s biggest gas supplier, hinted that it may raise gas prices to Ukraine. In December, Mr. Putin gave Ukraine a big discount on gas supplies as part of a $20-billion bailout package (of which only a few billion dollars has been delivered). The price, however, must be renegotiated every three months.
Russian Markets Plunge, Central Bank Moves To Increase Rates Google