When Russian, Ukrainian, and global markets reopened on Tuesday, investors were ready for a tumultuous day, as Vladimir Putin stepped it up in a situation that the West worries might devolve into a major conflict.
The Russian president recognized two separatist areas in eastern Ukraine, Donetsk, and Luhansk, as autonomous states in a prolonged televised address, and defined Ukraine as a vital part of Russia's history.
The tensions in Ukraine have already roiled global markets this year, wiping tens of billions of dollars from the value of Russian and Ukrainian assets, but Monday's escalation is anticipated to wreak havoc.
"It is probably an understatement to say that it will be an ugly day (on the markets) tomorrow," said Viktor Szabo, an emerging market portfolio manager at abrdn in London.
"I was hoping we weren't going to get here, but this is a significant step."
When Putin revealed his decision on live television after talks with the leaders of Germany and France over the phone, stock markets in Russia were still operating.
The rouble dropped 3.3 per cent, while Moscow's stock markets fell to their lowest level in almost a year, with the dollar-denominated RTS index falling 13.2 per cent and the rouble-based MOEX Russian index falling 10.5 per cent.
Analysts at the Commonwealth Bank of Australia cautioned traders before Tuesday's Asian open that Putin's recognition of separatist-held portions of Ukraine would worsen already high tensions.
"Financial market participants now wait for a response from the United States and Europe," they added.
This response is anticipated to take the form of fresh, harsh penalties.
Although other sanctions may be taken first, cutting Russia's banks off from the SWIFT financial system and ordering a total ban on EU, UK, and US investment funds owning Russian government bonds would be among the most severe.
Foreigners held little over $43 billion in OFZs, Russia's rouble-denominated bonds, at the end of last year.
"We agreed (Britain) and (the EU) will coordinate to deliver swift sanctions against Putin’s regime, and stand shoulder-to-shoulder with Ukraine," British Foreign Minister Liz Truss said on Twitter following a call with European Union foreign policy chief Josep Borrell.
After reaching a high of 10.6 per cent on Monday, yields on Russia's 10-year OFZs were projected to rise higher. With $630 billion in international FX reserves, Russia has one of the world's largest reserves, but the cost of insuring its sovereign debt versus default has also risen to its highest level since early 2016.
Analysts also warned of the larger impact on global market confidence, which has already been harmed by the tensions, which have been compounded by the strains of rapidly rising global borrowing prices this year.
Futures markets predicted a 1.8 per cent decrease in the S&P 500 on Wall Street, a 2.2 per cent drop in Japan's Nikkei, a 2.5 per cent drop in the Nasdaq, and a 3.7 per cent drop in Europe's DAX. U.S. Treasuries rose in response to demand for conventional safe assets.
"This step clearly increases uncertainty and thus creates further downside risk for global risk assets," said Manik Narain, head of emerging market strategy at UBS.
"We are going to see a negative reaction," added Ken Polcari, managing partner at Kace Capital Advisors in Florida. "We are going to test the Jan. 24 lows which were 4,220 on the S&P 500".
(Source:www.cnbctv18.com)
The Russian president recognized two separatist areas in eastern Ukraine, Donetsk, and Luhansk, as autonomous states in a prolonged televised address, and defined Ukraine as a vital part of Russia's history.
The tensions in Ukraine have already roiled global markets this year, wiping tens of billions of dollars from the value of Russian and Ukrainian assets, but Monday's escalation is anticipated to wreak havoc.
"It is probably an understatement to say that it will be an ugly day (on the markets) tomorrow," said Viktor Szabo, an emerging market portfolio manager at abrdn in London.
"I was hoping we weren't going to get here, but this is a significant step."
When Putin revealed his decision on live television after talks with the leaders of Germany and France over the phone, stock markets in Russia were still operating.
The rouble dropped 3.3 per cent, while Moscow's stock markets fell to their lowest level in almost a year, with the dollar-denominated RTS index falling 13.2 per cent and the rouble-based MOEX Russian index falling 10.5 per cent.
Analysts at the Commonwealth Bank of Australia cautioned traders before Tuesday's Asian open that Putin's recognition of separatist-held portions of Ukraine would worsen already high tensions.
"Financial market participants now wait for a response from the United States and Europe," they added.
This response is anticipated to take the form of fresh, harsh penalties.
Although other sanctions may be taken first, cutting Russia's banks off from the SWIFT financial system and ordering a total ban on EU, UK, and US investment funds owning Russian government bonds would be among the most severe.
Foreigners held little over $43 billion in OFZs, Russia's rouble-denominated bonds, at the end of last year.
"We agreed (Britain) and (the EU) will coordinate to deliver swift sanctions against Putin’s regime, and stand shoulder-to-shoulder with Ukraine," British Foreign Minister Liz Truss said on Twitter following a call with European Union foreign policy chief Josep Borrell.
After reaching a high of 10.6 per cent on Monday, yields on Russia's 10-year OFZs were projected to rise higher. With $630 billion in international FX reserves, Russia has one of the world's largest reserves, but the cost of insuring its sovereign debt versus default has also risen to its highest level since early 2016.
Analysts also warned of the larger impact on global market confidence, which has already been harmed by the tensions, which have been compounded by the strains of rapidly rising global borrowing prices this year.
Futures markets predicted a 1.8 per cent decrease in the S&P 500 on Wall Street, a 2.2 per cent drop in Japan's Nikkei, a 2.5 per cent drop in the Nasdaq, and a 3.7 per cent drop in Europe's DAX. U.S. Treasuries rose in response to demand for conventional safe assets.
"This step clearly increases uncertainty and thus creates further downside risk for global risk assets," said Manik Narain, head of emerging market strategy at UBS.
"We are going to see a negative reaction," added Ken Polcari, managing partner at Kace Capital Advisors in Florida. "We are going to test the Jan. 24 lows which were 4,220 on the S&P 500".
(Source:www.cnbctv18.com)
