Friday, February 23, 2024
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Ruble dives, stocks sink as West tightens Russia sanctions

TOKYO (AP) – The ruble plunged to a record low of less than one United States (US) cent and most global stock markets declined yesterday after Western nations moved to block some Russian banks from a global payments system.

Russia’s invasion of Ukraine has caused markets to swing wildly, given the potential impact on inflation, energy supplies and other economic repercussions.

Putin’s order that Russian nuclear weapons stand at increased readiness to launch ratcheted up tensions with Europe and the US and revived dormant fears from the Cold War era.

The Russian central bank raised its key rate to 20 per cent from 9.5 per cent in a desperate attempt to shore up the plummeting ruble and prevent a run on banks. That brought a temporary reprieve for the Russian currency, which bounced back to the level it was at last week, but only briefly.

The ruble has plunged more than 30 per cent after the move to block Russian banks from the SWIFT payments system. The sanctions include restrictions meant to crimp the Russian central bank’s access to over USD600 billion in reserves and hinder its ability to support the ruble.

A weaker ruble is expected to cause inflation to surge, potentially angering Russians whose budgets will be stretched by soaring prices. It will also add to strains across Russia’s financial systems.

People walking by The New York Stock Exchange building. PHOTO: AP

Germany’s DAX fell 2.1 per cent to 14,263.95 and the CAC 40 in Paris lost 2.3 per cent to 6,595.83. Britain’s FTSE 100 shed 1.7 per cent to 7,365.29.

In New York, the future for the S&P 500 was 1.6 per cent lower and that for the Dow industrials declined 1.3 per cent.

Last Friday, the S&P 500 climbed 2.2 per cent, notching its first weekly gain in three weeks. The Dow Jones Industrial Average rose 2.5 per cent and the Nasdaq composite gained 1.6 per cent. The Russell 2000 index rose 2.3 per cent.

The end of the month usually brings a raft of economic data, but for now the conflict is eclipsing other issues.

“It’s all about the Russia-Ukraine situation and evolutions in that situation will drive market sentiment and direction,” Jeffrey Halley of Oanda said in a commentary.

“President Putin will now have to accept that the ‘Western’ powers are prepared to accept quite a bit of economic pain now to punish Russia,” he said.

Markets in Asia appeared to take the latest developments more calmly.

Japan’s Nikkei 225 index recovered from earlier losses to edge 0.2 per cent higher to 26,526.82. The Hang Seng in Hong Kong lost 0.2 per cent to 22,713.02. The Shanghai Composite index gained 0.3 per cent to 3,462.31. The Kospi in Seoul climbed 0.8 per cent to 2,699.18, while in Sydney the S&P/ASX 200 gained 0.7 per cent to 7,049.10.

Although Asia is unlikely to suffer direct damage from the war in Ukraine, higher energy prices are an unwelcome burden for oil-importing nations like Japan, especially while they are still struggling to recover from the pandemic.

Underscoring deepening rifts due to the conflict, BP said on Sunday it was exiting its 19.75 per cent share in Rosneft, a state-controlled Russian oil and gas company, which it has held since 2013. That stake is currently valued at USD14 billion.

Oil prices surged yesterday, with US benchmark crude up USD4.33, or 4.7 per cent, at USD95.92 per barrel in electronic trading on the New York Mercantile Exchange. It lost USD1.22 to 91.59 per barrel on Friday. Brent crude gained USD4.20 to USD98.32 per barrel, up 4.5 per cent and approaching the USD100 per barrel level it breached last week.

The Ukraine conflict has heaped uncertainty atop other worries over interest rates and inflation.

The US Federal Reserve has suggested it will raise short-term interest rates next month by double its usual increase, the first rate increase since 2018. Higher US rates tend to put downward pressure on all kinds of investments, and can have global repercussions.

In currency trading, the US dollar inched down to JPY115.61 from JPY115.77. The euro rose to USD1.1165 from USD1.1157.