A harsh series of weekend sanctions has markets in retreat around the world Monday, with ruble plunging to an all-time low against the U.S. dollar.
U.S. equity futures slumped lower Monday, while oil prices tested fresh 2014 highs amid a broader rally in commodities prices, as fighting between Russia and the Ukraine entered its fifth day and western world leaders moved to isolate Moscow from the global financial system.
Russia’s central bank was effectively blocked from accessing hundreds of billions of U.S. dollars stocked away to help defend its currency, with the ruble left to fall another 30% to an all-time low against the greenback as a result. Several major Russian lenders, meanwhile, were locked out of the international SWIFT payment system, a move that added to the pressures on domestic financial markets and forced the central bank to raise its base lending rate to 20% — the highest since 2003 — and introduce capital controls in an effort to prevent a run on banks around the country.
President Joe Biden is set to speak with NATO leaders later today, while reports suggest Ukraine’s Defense Minister will meet with Russian officials near the Belarus border for talks aimed at brokering at least a near-term ceasefire.
The harsher weekend sanctions — which, thus far, have excluded the energy sector — compelled President Vladimir Putin to put the country’s nuclear arms facilities on high alert, while triggering significant price upheavals in markets around the world.
“After the first round of sanctions somewhat overwhelmed, new sanctions announced over the weekend by the US and especially the EU have completely reset the narrative,” Saxo Bank’s strategy team said. “The most dramatic measure is the move against the Russian Central Bank, in which the US, UK, Canada and EU will ‘impose restrictive measures that will prevent the Russian Central Bank from deploying its international reserves in ways that undermine the impact of our sanctions’.”
“This measure will make it difficult for the Russian financial system to even interface with the world,” they added.
Oil prices were sharply higher in overnight trading, alongside wheat, aluminum and other base metals, in anticipation of supply disruptions and sanctions on the export of Russian crude, which comprises around 10% of global supply.
WTI futures for April delivery soared $4.64 to a $96.23 [er barrel while Brent contracts for the same month surged $4.93 to $102.86 per barrel.
On Wall Street, futures linked to the Dow Jones Industrial Average are priced for a 330 point opening bell decline, a move that would take the average to its lowest levels in around 9 months, while those linked to the S&P 500, which is down 8% for the year, are priced for an 48 point retreat.
Nasdaq Composite futures are indicating a 150 point slump for the tech-focused benchmark as 10-year Treasury note yields held at 1.918% in early New York trading.
The gap between 2-year and 10-year note yields, a reliable recession indictor, is holding at around 41 basis points, up from the April 2020 low of 37 basis points last week but sell ‘flat’ enough to induce concerns for a near-term pullback in broader economic growth.
Friday’s employment report will go a long way towards understanding the Fed’s data-driven stance on rates, with analysts looking for a headline addition of 450,000 new jobs as the unemployment rate dips back to 3.9%.
Fed Chair Jerome Powell is also expected to testify before the House Financial Services Committee Wednesday and the Senate Banking Committee Thursday.
BP Plc (BP) – Get BP Plc Report shares were an active early mover, falling 7.4% in pre-market trading Monday after Europe’s second-largest oil company said it would dump its near 20% in Russian energy giant Rosneft at a cost of around $25 billion.
In overseas markets, Europe’s Stoxx 600 was marked 1.38% lower by mid-day trading in Frankfurt while the region-wide MSCI ex-Japan index gained 0.19% into the close of trading.
