(Bloomberg) — Equity futures slid Monday, sovereign bonds rallied and commodities including oil surged amid heightened uncertainty after Western nations escalated sanctions on Russia for the invasion of Ukraine.
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European contracts fell some 3%, while those for the Nasdaq 100 and S&P 500 shed about 2%. Oil, natural gas, wheat and palladium jumped, with Brent crude again soaring above $100 a barrel on fears of commodity-supply disruptions.
Rallies in a dollar gauge, gold and Treasuries underlined the demand for havens. The euro fell on worries about risks for Europe’s economy, which relies on Russian energy. An Asia-Pacific equity index was steady.
The fresh Western penalties further isolate commodity-rich Russia from global finance by seeking to prevent its central bank from using foreign reserves to blunt sanctions. They also exclude some Russian lenders from the SWIFT messaging system that underpins trillions of dollars worth of transactions.
Doubts are now growing about the Bank of Russia’s ability to backstop Russia’s financial system. The nation hiked interest rates to 20% from 9.5%, mandated sales of foreign-currency revenue by exporters and temporarily banned non-residents from selling securities. The ruble fell 8% at the open in Moscow.
There’s speculation that monetary authorities may have to supply markets with dollars to fill holes in global banking created by the SWIFT step.
The escalating Ukraine conflict and more severe Western sanctions are roiling markets. The hostilities threaten to stoke inflation by imperiling flows of key resources such as grains, energy and metals, exacerbating the pandemic-era price pressures that were already weighing on world growth.
A key question is how all this may affect the Federal Reserve’s plan for a series of interest-rate hikes starting March. Markets now see smaller chances of an aggressive Fed liftoff, and anticipate just under six hikes in 2022.
“We’re just a few days into a kind of once-in-a-lifetime reorientation in the global order,” Homin Lee, Asia macro strategist as Lombard Odier, said on Bloomberg Television. “This transition is not going to be a smooth one” and uncertainties will remain very high in the next few weeks, he said.
Ruble Fears
In Russia, citizens were lining up at cash machines around the country to withdraw foreign currency, fearful of a ruble collapse. Russian bonds were cut to below investment grade by S&P Global Ratings on Friday.
Meanwhile, BP Plc will exit its shareholding in Russia’s largest oil company Rosneft PJSC, potentially taking a financial hit of up to $25 billion. Norway plans to excise Russian assets from its $1.3 trillion sovereign wealth fund.
Ukraine’s President Volodymyr Zelenskiy voiced skepticism about planned talks between Ukrainian and Russian officials at the Belarus border. The Washington Post reported that Belarus is preparing to send troops into Ukraine as soon as Monday to help its ally Moscow.
The conflict is “likely to boost energy prices significantly, resulting in immediate inflationary effects and a large drag on global growth,” Silvia Dall’Angelo, senior economist at Federated Hermes, wrote in a note. “It’s fair to say that the crisis increases the room for central banks’ policy mistakes.”
What to watch this week:
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President Joe Biden State of the Union address, Tuesday
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Reserve Bank of Australia policy decision, Tuesday
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Fed Chair Jerome Powell testifies to Congress on monetary policy, Wednesday and Thursday
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OPEC+ meeting, Wednesday
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Eurozone CPI, Wednesday
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Bank of Canada rate decision, Wednesday
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ECB publishes the account of its February meeting, Thursday
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U.S. unemployment, nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures fell 2% as of 7:16 a.m. in London. The S&P 500 rose 2.2% on Friday
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Nasdaq 100 futures lost 2.1%. The Nasdaq 100 rose 1.5% on Friday
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Japan’s Topix index added 0.6%
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South Korea’s Kospi index increased 0.8%
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Australia’s S&P/ASX 200 index rose 0.7%
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China’s Shanghai Composite index climbed 0.3%
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Hong Kong’s Hang Seng Index declined 0.6%
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Euro Stoxx 50 futures fell 3%
Currencies
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The Bloomberg Dollar Spot Index rose 0.5%
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The euro was at $1.1170, down 0.9%
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The Japanese yen was at 115.53 per dollar
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The offshore yuan was at 6.3130 per dollar
Bonds
Commodities
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West Texas Intermediate crude rose 5.4% to $96.52 a barrel
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Gold rose 0.9% to $1,906.00 an ounce
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