Commodities surged on Monday as sovereign bonds rallied, with equities dropping as the conflict between Russia and Ukraine escalates and following a new list of sanctions. European markets and US index features dipped, with Russian banks leading to declines. With concerns about commodity supply disruptions, Brent crude jumped to around $103.
The Russian ruble lost almost a third of its value at some point on Monday, with government debt insuring cost signaling a 56% possibility of default. The Euro also dropped on risk concerns for Europe’s economy that depends on Russian oil.
Ukraine and Russia in talks to end conflict
On the 5th day of the invasion, a Ukrainian envoy headed by the defense minister commenced negotiations with Russian authorities. President of Ukraine Volodymyr Zelenskiy expressed doubt about the negotiations’ success but said he was ready to give it a shot if it represented a shot at peace.
The talks take place as new restrictions seek to further alienate Russia’s commodity-rich economy from international finance by preventing its central bank from utilizing foreign reserves to counter-sanctions. The sanctions also bar some Russian financial institutions from using the SWIFT system, which underlies trillions of dollars in operations.
The Russian Central Bank acted fast to protect the country’s economy. It raised its benchmark interest rate to 20%, the highest level in nearly two decades, and enforce capital controls. Faced with the threat of a bank run, a quick sell-off in assets, and the biggest decline in the ruble in over two decades, policymakers also barred traders from selling foreigners’ equities on the Moscow Exchange beginning Monday.
Russian exporters to commence mandatory hard-currency sales
Russian exporters have been instructed to begin compulsory hard-currency income sales, and share trading in Moscow has been temporarily halted. The Russian ruble will not be permitted to breach a particular range until the central bank adjusts its policy, reversing a free-floating exchange rate system in effect since 2014.
Markets are roiled by the intensifying crisis and the imposition of harsher penalties. Hostilities threaten to boost inflation by jeopardizing primary resource flows like energy, cereals, and metals, worsening price pressures already impacting on global economy during the pandemic.
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