NEW YORK/LONDON, Feb 28 (Reuters) – The Russian ruble hit record lows on Monday while world stocks slid and oil prices jumped after the West ramped up sanctions against Moscow over its invasion of Ukraine, including blocking Russian banks from the SWIFT global payments system.
Russia’s central bank hiked its key interest rate to 20% from 9.5% and introduced some capital controls to bolster the ruble and fight inflation. Authorities ordered exporting companies to sell 80% of their foreign revenues as the ruble slid as much as 32% before recouping some losses.
The European arm of Sberbank (SBER.MM), Russia’s biggest lender, faces failure, the European Central Bank (ECB) said, an early sign of a looming economic crisis in Russia. The fallout from tougher sanctions also rippled across financial markets outside Russia, especially in Europe where the main German and French bourses fell more than 3% in early trade but later pared most of those losses.
European banks were hit hard, with those most exposed to Russia, including Austria’s Raiffeisen Bank (RBIV.VI), UniCredit (CRDI.MI) and Societe Generale (SOGN.PA), falling between 9.5% and 14%. The wider euro zone index (.SX7E) of 22 major banks lost 5.7%, but the pan-regional STOXX 600 stock index closed down a scant 0.09% as sentiment improved at its close.
European bank stocks slide as West ramps up Russia sanctions
European bank stocks slide as West ramps up Russia sanctions
However, talks on a ceasefire ended without a breakthrough and a member of the Ukrainian delegation said the discussions were difficult as the Russian side was biased, news that darkened the mood on Wall Street.
The Dow Jones Industrial Average (.DJI) closed down 0.49% and the S&P 500 (.SPX) lost 0.25%. The Nasdaq Composite (.IXIC) rebounded, adding 0.41%, as investors bet the Federal Reserve will be less aggressive hiking interest rates. MSCI’s all-country world equity index (.MIWD00000PUS) closed down 0.077%.
Markets are likely to remain choppy in the near term, analysts said. While valuations have fallen and some risks have been priced into the market, it’s not time to derisk, Solita Marcelli, chief investment office for the Americas at UBS Global Weather Management, told clients in a note.
“Investors trying to trade off geopolitical events can easily get whipsawed,” Marcelli said, noting that sell-offs based on geopolitical events have been brief in the past. Oil prices surged after Russian President Vladimir Putin on Sunday put nuclear-armed forces on high alert.
The ramp-up in tensions heightened fears that oil supplies from the world’s second-largest producer could be disrupted, sending Brent crude futures to settle up $3.06 at $100.99 a barrel. U.S. oil settled up 4.5% at $95.72 a barrel, after topping $100 last week, their highest since 2014.
Even if Western governments allow the purchase of oil and gas from Russia, markets need to digest the disruption to hedging contracts, insurance coverage and energy markets, said Christopher Smart, chief global strategist at Barings Investment Institute.
“If Russian entities are effectively blocked from exchanging their money into the world’s reserves currencies, will the Russian government allow the foreign debts to be paid?” he said.
Reporting by Herbert Lash, additional reporting by Dhara Ranasinghe and Elizabeth Howcroft in London, Kevin Buckland in Tokyo; Editing by Jason Neely, Hugh Lawson, Nick Zieminski and Jonathan Oatis