The rising threat of war between Ukraine and Russia sent investors scurrying for relative safety on Monday, pushing stocks down sharply – the Moscow market fell 11.5 percent – and lifting gold to a four-month high.
U.S. investors were set to add their weight to the move at the open, with stock index futures all down around 1 percent and benchmark U.S. Treasury yields down 5.5 basis points.
With Russian troops already on Ukrainian soil after an incursion into Crimea, comments over the weekend from President Vladimir Putin that he had the right to invade the rest of the country were treated as a declaration of war by Kiev.
Geopolitical ripples from those statements, which included condemnation from the Group of Seven major industrialized nations and the threat of sanctions, spread through markets, hitting Russian assets the hardest and forcing the Russian central bank to aggressively raise interest rates.
Russia’s stock market nosedived at the open and the ruble fell 2 percent to record lows against the dollar and the euro before recovering to trade up 1.4 percent after the central bank dramatically lifted its key lending rate by 1.5 percentage points to 7 percent at an unscheduled meeting.
The country’s sovereign dollar bonds were also hit, down more than 2 points, while the cost of buying 5-year swaps to insure against a Russian debt default jumped 33 basis points.
“Investors had underestimated the risks of an escalation in Ukraine, so the events over the weekend are a wake-up call for the market,” said David Thebault, head of quantitative sales trading at Global Equities in Paris.
The escalating tensions sent Ukraine’s hryvnia to a record low against the dollar and pushed the country’s dollar bonds down 6 points on Monday, in contrast to a jump in safe-haven German Bund futures, which rose 87 ticks. Continued…