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Stocks fall as Russia sanctions hit world market

Stocks fall as Russia sanctions hit world market

On Monday, the Russian ruble fell to new record lows, while global stocks fell and oil prices rose, as the West stepped up sanctions against Russia for its invasion of Ukraine. This even includes blocking banks from the SWIFT global payments system.

The news: In order to support the ruble and combat inflation, Russia’s central bank raised its key interest rate to 20 per cent from 9.5 per cent. Authorities warned export-oriented businesses to be prepared to sell foreign currency after the ruble fell 32 per cent before recovering roughly half of its losses.

  • As an economic crisis loomed in Russia, the fallout from tougher sanctions imposed by the West over the weekend reverberated across financial markets, particularly in Europe, where the pan-regional STOXX 600 index fell 1.10 per cent.
  • European banks were hit hard, with those most exposed to Russia, such as Austria’s Raiffeisen Bank, UniCredit, and Societe Generale, falling by 11 to 15 per cent.
  • The eurozone banking index as a whole fell 6.80 per cent.

What’s going on: On Wall Street, the Dow Jones Industrial Average fell by 0.93 per cent, the S&P 500 dropped 0.65 per cent, and the Nasdaq Composite gained 0.04 per cent as investors bet the Federal Reserve will be more cautious in raising interest rates. The MSCI all-country world equity index fell 0.44 per cent.

  • Analysts predict that markets will remain choppy in the near term. While valuations have fallen and some risks have been priced into the market, Solita Marcelli, chief investment office for the Americas at UBS Global Weather Management, stated in a client note that now is not the time to derisk.
  • “Investors trying to trade off geopolitical events can easily get whipsawed,” Marcelli said, noting that geopolitical sell-offs in the past have been brief.
  • Oil prices rose after Russian President Vladimir Putin declared nuclear-armed forces on high alert on Sunday, the fourth day of the most devastating attack on a European state since World War II.
  • The escalation of tensions raised concerns that oil supplies from the world’s second-largest producer could be disrupted, sending Brent crude futures up 2.9 per cent to $100.77. After reaching a high of $95.57 per barrel last week, US futures rose 4.35 per cent to $95.57.
  • According to analysts, the global economy is facing significant economic and financial turmoil in Russia, the world’s 11th largest economy, which will spill over its borders.
  • Even if Western governments allow Russia to purchase oil and gas, markets must digest unavoidable disruption to hedging contracts, insurance coverage, and energy markets, according to Christopher Smart, chief global strategist at Barings Investment Institute.

“Will the Russian government allow foreign debts to be paid if Russian entities are effectively barred from exchanging their money into the world’s reserve currencies?” he questioned.

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