Tokyo, New York The new trading week on the global stock markets starts with restraint in Tokyo. Despite the tough sanctions decided by the US and EU over the weekend, investors avoided a sell-off. Instead, the stock markets reacted “impressively resilient” as Jeffrey Halley, Asia analyst at online currency trader Oanda, says.
One reason, Halley says, is that the Swift sanctions leave a door open for oil and gas supplies. But investors in Japan and South Korea in particular are awaiting the outcome of talks announced by Russia and Ukraine to take place on Monday morning at the Belarusian border. Meanwhile, Moscow has postponed its stock market launch to 1 p.m. Central European Time.
The leading Japanese index Nikkei was even up at times during morning trading and finally went into the lunch break at 26,393 points and 0.3 percent below Friday’s closing price. The more broadly weighted Topix index was down 0.02 percent, while South Korea’s Kospi index was even up 0.2 percent.
Markets that are more dependent on China, however, turned more heavily into the red after a slow start. The Shanghai Composite Index was down 0.1 percent as of 10:30 a.m. local time, Hong Kong’s Hangseng Index was down 0.8 percent and Singapore’s Straits Times Index was down one percent.
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However, market participants see no turning point in the restrained reactions of the stock exchanges in Tokyo and Seoul, but only a lurking position. Hiroyuki Fukunaga, CEO of Investlast, a trust fund provider, told the Japanese newspaper Nikkei that he wanted to wait and see where talks between the warring factions would lead.
Futures on US markets collapse
However, if the situation escalates again, for example if Russia takes further countermeasures against the additional economic sanctions from Europe, Fukunaga expects losses.
The unprecedented sanctions against the Russian financial system already caused drastic reactions on the markets on Monday night: futures on the S&P 500 fell by 2.4 percent, those on the Nasdaq technology exchange fell by 2.7 percent.
Over the weekend, the US, EU, Canada, UK and Japan decided to exclude certain Russian banks from the Swift international payment system. The Russian central bank is also to be subject to sanctions. “This is probably the move that causes the most pain in the international financial system,” said Josh Lipsky of the Atlantic Council think tank. Sanctions have never been imposed on a central bank of the 20 largest industrialized nations (G20). Elina Ribakova, deputy chief economist at the Institute of International Finance, believes a collapse of the Russian financial system is possible.
Currency markets: ruble loses a quarter of its value
On the foreign exchange markets, the ruble came under pressure because of the financial sanctions. Investors fear a run on the banks and a collapse of the Russian currency: Part of the latest package of sanctions by the West also includes the exclusion of many Russian banks from the financial system Swift, as well as measures taken by the Russian central bank.
The Russian currency lost around a quarter of its value on Monday morning. For one dollar had to pay 105.27 rubles. On Friday evening it was still around 84 rubles. Also, assets of the Central Bank of Russia, which holds more than $600 billion in reserves, were frozen. This is hampering support purchases that could stabilize the ruble exchange rate.
Russia’s central bank wants to take further measures to support the domestic financial system. Securities dealers were prohibited from selling Russian securities owned by foreigners, the bank announced on Monday morning. Domestic financial institutions are also to be supported with capital injections and foreign currency transactions.
In Japan, some online forex trading platforms, through which many retail investors trade currencies, are already suspending ruble-yen trading. The official exchange rate of the Russian currency against the yen has hardly moved at all so far.
Fluctuations in other currencies were also minor. The dollar opened much weaker in Tokyo. At 11:14 local time, however, the price was 115.48, 0.18 percent higher than last. By then, the euro had lost 0.23 percent against the yen, but 0.41 percent against the dollar. The euro was trading at $1.11 at the time.
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“Geopolitical developments are very fluid and have the potential to create high short-term volatility in financial markets,” warned Ebrahim Rahbari, currency strategist at Citigroup on Sunday. How long this so-called “risk-off” phase could last depends on political developments.
The Swift exclusion of Russian banks could lead to missed payments and overdrafts in the international banking system, prompting central banks to inject fresh liquidity into the markets. This emerges from an analysis by Credit Suisse strategist Zoltan Pozsar. “Central banks should be prepared to step in as market makers on Monday,” he wrote.
The Fed actually wanted to start reducing total assets in March and could now be forced to expand them in the wake of the Ukraine war. Jerome Powell, the head of the US Federal Reserve (Fed) is scheduled to testify before the US Congress on Wednesday and Thursday. The next Fed meeting is scheduled for mid-March. Then the central bankers also want to raise the key interest rate for the first time since the pandemic.
Commodity markets: The price of oil is rising
Oil prices rose sharply on Monday following a further escalation in the Ukraine war. The price for a barrel (159 liters) of North Sea Brent rose above the $100 mark after falling below this level on Friday. Most recently, Brent cost $103.15, around 5 percent more. Prices came under some pressure on Friday on vague hopes of talks between Russia and Ukraine.
Gold prices rose as much as 2.2 percent in early Asian trade to $1,930.85 an ounce. Cryptocurrencies gave way. Market leader Bitcoin was down 1.7 percent and cost $37,782. Ether, the second largest cryptocurrency, was down 3.6 percent at $2,625.
The war “is likely to push energy prices up significantly, leading to immediate inflationary effects and slowing the global economy,” wrote Silvia Dall’Angelo, economist at asset manager Federated Hermes. That increases the risk “that the central banks will make mistakes.”
With agency material
More: It would be an unprecedented step: The governments in the USA and Europe want to freeze the international reserves of the Russian central bank – with drastic consequences for the economy.