US markets pointed to a weaker open on Monday and the ruble plunged to a record low of less than a US cent after Western countries moved to block some Russian banks from a global payment system.
The US Treasury Department also announced powerful new sanctions that could tie up all Russian central bank assets in the US or held by Americans. The Biden administration has said Germany, France, the United Kingdom, Italy, Japan, the European Union and others will join the United States in hitting the Russian central bank, which announced Monday that the Moscow Stock Exchange would remain closed on Monday.
On Wall Street, Dow Jones industrial futures fell 0.8% and the S&P 500 fell 0.9%.
Russia’s invasion of Ukraine caused markets to swing sharply, given the huge potential economic impact, especially on inflation and energy supply.
Putin’s order that Russian nuclear weapons be increasingly ready to launch has heightened tensions with Europe and the United States and reignited latent Cold War-era fears.
Russia’s central bank raised its benchmark rate from 9.5% to 20% in a desperate attempt to prop up the ruble’s slide and stave off a run on the banks. This brought temporary respite to the Russian currency, which rebounded to where it was last week, but only briefly.
It fell as low as 119 to the dollar and by midday Europe was down 18% to 96.18 to the dollar.
The ruble plunged more than 30% after the decision to block Russian banks from the SWIFT payment system. Among other things, the sanctions aim to restrict the Russian central bank’s access to more than $600 billion in reserves and hamper its ability to support the rouble.
A weaker ruble is expected to cause inflation to spike, which could anger Russians whose budgets will be strained by soaring prices. It will also add to strains in Russian financial systems.
“At the moment, the ruble is in a near freefall state,” FxPro’s Alex Kuptsikevich said in a report. “At some point in the next few days we will see the limit of the ruble’s fall, from where it will begin its slow and difficult recovery. But it is difficult to specify this.
The German DAX fell 2% and the CAC 40 in Paris lost 2.7%. Britain’s FTSE 100 lost 0.9%.
On Friday, the S&P 500 climbed 2.2%, posting its first weekly gain in three weeks. The Dow Jones Industrial Average rose 2.5% and the Nasdaq composite gained 1.6%. The Russell 2000 Index rose 2.3%.
The end of the month usually brings a series of economic data, but for now the conflict overshadows other issues.
“It all depends on the Russia-Ukraine situation and developments in that situation will determine market sentiment and direction,” Oanda’s Jeffrey Halley said in a commentary.
“President Putin will now have to accept that the ‘Western’ powers are willing to accept a lot of economic pain now to punish Russia,” he said.
Asian markets seemed to accept the latest developments with more calm.
Japan’s Nikkei 225 index rebounded from earlier losses, rising 0.2% to 26,526.82. The Hang Seng in Hong Kong fell 0.2% to 22,713.02 as authorities there announced a daily record of 34,000 new COVID-19 cases in the city of 7.5 million.
The Shanghai Composite Index gained 0.3% to 3,462.31 and the Kospi in Seoul climbed 0.8% to 2,699.18, while in Sydney the S&P/ASX 200 gained 0.7 % to 7,049.10.
Although Asia is unlikely to suffer direct damage from the war in Ukraine, rising energy prices are an unwelcome burden for oil-importing countries like Japan, especially as they struggle yet to recover from the pandemic.
Oil prices surged on Monday, with benchmark U.S. crude up $4.02 to $95.61 a barrel in electronic trading on the New York Mercantile Exchange. It lost $1.22 to 91.59 a barrel on Friday.
Brent crude gained $4.07 to $98.19 a barrel, approaching the $100 a barrel level it broke last week.
The conflict in Ukraine added uncertainty to other concerns about interest rates and inflation.
The U.S. Federal Reserve has hinted that it will raise short-term interest rates next month by double their usual increase, the first rate increase since 2018. Rising U.S. rates tend to put pressure on the drop on all kinds of investments and can have global repercussions.
In currency trading, the US dollar fell slightly to 115.55 Japanese yen from 115.77 yen. The euro fell from $1.1157 to $1.1201.