Finance

Global markets shudder over Russia sanctions

Major US indexes dipped at the opening bell but recovered some losses in morning trading. Around 11 am, the Dow remained down more than 250 points, or 0.7 percent. The broader S&P 500 was down about 0.5 percent, while the tech-heavy Nasdaq had cut its losses and was trading 0.3 percent higher. All three are down more than 6 percent year to date, according to MarketWatch.

European markets were broadly in negative territory in midday trading, with France’s CAC40 declining 2.3 percent and Germany’s DAX giving up nearly 1.7 percent. Asian markets were mixed at the close, with most indexes notching moderate gains while Hong Kong’s Hang Seng Index posted a mild decline of 0.25 percent.

Markets loathe uncertainty, and volatility is likely to rage as investors grapple with the lack of immediate resolution on the horizon with Russia and Ukraine according to David Bahnsen, chief investment officer of the Bahnsen Group.

Although the US market fundamentals have weathered the storm so far, “sentiment-driven concerns are unlikely to change anytime soon,” Bahnsen said Monday in comments emailed to The 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.”

In recent days, the United States and its allies have moved to bar several major Russian banks from SWIFT (a global monetary transfer service), crack down on Russian oligarchs and prevent Russia’s central bank from bailing out the domestic economy.

Russia responded by more than doubling its key interest rate from 9.5 percent to 20 percent on Monday. In a statement, the Bank of Russia said the hike, one of the largest one-time increases in recent memory, was due to a drastic change in “external conditions for the Russian economy.” The bank also froze the opening of its stock market and delayed trading on domestic debt and currency markets.

Russia’s economy was already showing signs of severe distress before the new measures were implemented, with Russians flocking to ATMs in a desperate bid to withdraw cash as the ruble weakened. Last week, as the incursion into Ukraine unfolded, Moscow’s MOEX index endured one of the steepest equity crashes in stock market history.

Other consequences are piling up, such as Russia’s move Monday to ban air carriers from 36 countries, including European countries 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.

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.

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 said. “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 nearly 4.5 percent higher Monday, around $98.30 per barrel. West Texas Intermediate crude, the US oil benchmark, also climbed nearly 4.5 percent, to trade around $95.60 per barrel.

Since December, oil prices have risen more than 40 percent, influenced in part by speculation that Russian President Vladimir 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 US 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 1.6 percent higher, around $1918 per troy ounce.

Other commodities tied to Russia and Ukraine, such as aluminum, wheat, corn and nickel, were trading at multi-year highs Monday due to anticipated disruption.

Government bonds, another safe haven, also saw pressure amid the tensions. The yield on the 10-year US Treasury note edged down to 1.875 percent in morning trading. Bond yields move inversely to prices.

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