Tuesday, 4 March 2014 01:15
REUTERS: The rising threat of war between Ukraine and Russia spooked markets and sent investors scurrying for relative safety on Monday, pushing stocks down sharply - with the Moscow stock market down 9% - and lifting gold to a four-month high.
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, spread through markets, hitting Russian assets the hardest and forcing the Russian central bank to aggressively raise interest rates.
Russia’s stock market nosedived 9% at the open on Monday while the rouble fell 2% to record lows against the dollar and the euro before recovering to trade up 1.3% after the Central Bank dramatically lifted its key lending rate by 1.5 percentage points to 7% at an unscheduled meeting.
Russia’s sovereign dollar bonds were also hit, down 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 64 ticks.
No major regional bourse escaped the aggressive selling, with all down more than 1% and Germany’s DAX particularly hard hit, tumbling 2.3%.
That had followed overnight weakness in Asia, with MSCI’s broadest index of Asia-Pacific shares outside Japan down 0.9% and Japan’s Nikkei 225 skidding 1.3%, while futures for the US Standard & Poor’s 500 slid 0.8% off Friday’s record high.