Tuesday, November 29, 2022

Global markets shudder over Russia sanctions

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Major U.S. indexes dipped on the opening bell and oscillated in afternoon buying and selling. The Dow closed down 166 factors, or 0.5 p.c. The broader S&P 500 was down about 11 factors, or 0.24 p.c, whereas the tech-heavy Nasdaq ended the day up 56 factors, or 0.41 p.c. All three are down greater than 7 p.c yr to this point, in line with MarketWatch.

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European markets additionally closed within the pink regardless of clawing again some losses, with France’s CAC 40 declining 1.4 p.c and Germany’s DAX giving up greater than 0.7 p.c. Asian markets had been combined on the shut, with most indexes notching reasonable positive aspects, whereas Hong Kong’s Hang Seng Index posted a gentle decline of 0.25 p.c.

Markets detest uncertainty, and volatility is more likely to rage as buyers grapple with the dearth of a direct decision of the Ukraine-Russia battle on the horizon, in line with David Bahnsen, chief funding officer of the Bahnsen Group.

Although the U.S. market fundamentals have weathered the storm up to now, “sentiment-driven concerns are unlikely to change anytime soon,” Bahnsen mentioned Monday in feedback emailed to The Washington Post. “From a market perspective, sanctions against Russia will likely have the largest impact on currency markets, including the ruble, the Euro and the dollar.”

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In current days, the United States and its allies have moved to bar a number of main Russian banks from SWIFT (a worldwide financial switch service), crack down on Russian oligarchs and stop Russia’s central financial institution from bailing out the home financial system.

Russia responded by greater than doubling its key rate of interest from 9.5 p.c to twenty p.c on Monday. In an announcement, the Bank of Russia mentioned the hike, one of many largest one-time will increase in current reminiscence, was due to a drastic change in “external conditions for the Russian economy.” The financial institution additionally froze the opening of its inventory market and delayed buying and selling on home debt and foreign money markets.

Russia’s financial system was already displaying indicators of extreme misery earlier than the brand new measures had been carried out, with Russians flocking to ATMs in a determined bid to withdraw money because the ruble weakened. Last week, because the incursion into Ukraine unfolded, Moscow’s MOEX index endured one of many steepest fairness crashes in inventory market historical past.

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On Monday, the New York Stock Exchange and the Nasdaq halted buying and selling of a number of Russian-owned, U.S.-listed corporations citing “regulatory concern.” E-commerce giant Ozon Holdings and mining giant Mechel PAO were among those frozen. The Wall Street Journal reported that the halts would be temporary and would not extend to delisting, when stocks are permanently kicked off an exchange.

Other consequences are piling up, such as Russia’s move Monday to ban air carriers from 36 countries, including European nations and Canada, from its massive, highly trafficked airspace after the European Union took similar action against Russian airlines. This will force major airlines to take longer, more circuitous routes to Asia and the Middle East, likely increasing the cost of ticket prices and jet fuel for travelers.

Travel stocks slumped in response, with United sliding 3.1 percent and Delta 3.9 percent, Southwest dropping 3 percent and American sliding 1.2 percent. Carnival and Royal Caribbean cruise lines both dipped more than 3.5 percent.

The maelstrom of disruption is arriving at a moment when the global economy is grappling with a host of pandemic-era stressors, from chaotic supply chains to widespread labor shortages. Although investors typically shrug off geopolitical tensions, the Ukraine crisis is weighing heavily on the markets because of Russia’s central role as a global energy producer. Russia produces about 10 percent of the world’s oil supply, on par with the United States and Saudi Arabia, and surging energy costs will ripple quickly through the economy, fueling inflation that is already threatening the economic recovery.

The historical record suggests that military conflicts and related geopolitical disruptions usually do more short-term damage to markets than they change overall sentiment and trends, according to Chris Larkin, managing director of trading at E-Trade from Morgan Stanley. Even after the immediate, headline-based volatility subsides, there will be many challenges for investors to contend with, Larkin said Monday in comments emailed to The Post.

“The macro factors that were in place before a shock will, in time, reassert themselves,” Larkin mentioned. “So pressures like high inflation and rising interest rates will remain after the market fully absorbs the shock of the events in Europe.”

Oil prices surged higher amid the rising tensions, which have seen oil prices pushed beyond $100 per barrel in recent sessions. Brent crude, the international oil benchmark, was trading roughly 4.4 percent higher Monday, around $98.3 per barrel. West Texas Intermediate crude, the U.S. oil benchmark, also climbed 4.2 percent, to trade above $95 per barrel.

Since December, oil prices have risen more than 40 percent, influenced in part by speculation that Putin was preparing to launch an attack. President Biden has said that limiting the pain Americans feel at the gas pump is “critical,” and that U.S. officials are working with allies to secure releases from the global oil reserve.

Gold, a Russian export and investor safe haven in times of turmoil, continued its upward march. On Monday, it was trading more than 0.8 percent higher, around $1,903.30 per troy ounce.

Other commodities tied to Russia and Ukraine, such as aluminum, wheat, corn and nickel, were trading at multiyear highs Monday because of anticipated disruption.

Government bonds, another safe haven, also saw pressure amid the tensions. The yield on the 10-year U.S. Treasury note edged down to 1.8 percent. Bond yields move inversely to prices.

Aaron Gregg contributed to this report.

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