The Impact of Russia-Ukraine War On The FX And Global Markets

By  //  April 12, 2022

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Russia’s recognition of the DLPR sparked a global uproar and the first round of sanctions as a result. Russian markets are closed due to a national holiday, but offshore trading shows that the country’s USD debt is decreasing. Take a look at how other countries’ markets have responded to the recent events in Ukraine.

Russia has signed agreements on social, economic, and military cooperation with the Donetsk and Lugansk People’s Republics (DLPR), which it recognizes as separate republics in eastern Ukraine. 

To deal with an “external military threat,” Russia may send troops into neighboring nations. Russia is hopeful that the situation in Ukraine’s eastern regions of Donetsk and Luhansk may be resolved diplomatically. OSCE assessments indicate that there have been multiple ceasefire violations along the DLPR and Ukraine-controlled borders.

This legislation would empower the US administration to lift sanctions on a maximum of 12 Russian financial institutions in the case of further escalation.

Stock Market Plunges

Since the outbreak of the worldwide pandemic in March 2020, the London Stock Exchange has had its greatest weekly losses since investors were alarmed by the expansion of the war in Ukraine.

FTSE 100 dropped more than 250 points in one day, bringing the weekly loss to 6.7 percent, after reports of a fire and Russian seizure of Ukraine’s Zaporozhye nuclear power facility. It is worth mentioning that the number of investors who started trading indices increased significantly, as prices of indices decreased lately.

In an interview with the BBC, World Bank President David Malpass described the conflict as an economic “catastrophe.” Additionally, currency and commodities markets saw indications of turmoil, with investors fleeing to the safety of the US dollar and a decade-high price for crude oil.

Wholesale gas prices in both the EU and the United Kingdom hit a record high at the same time. An all-time high of 500p per therm was reached at one point in the UK National Balancing Point (NBP) benchmark during an extended spike that led to the demise of many residential gas providers.

The FTSE 100 index in London fell 251 points, or 3.5%, to 6,998. European stock markets plunged more than 4%, with the Dax in Frankfurt falling to its lowest level since late 2020, and the Italian index falling 6.2% to its lowest level in more than a year. The Euro Stoxx 600 index fell to its lowest level in a year.

Capital Economics emerging markets expert Liam Peach said: “Russia has slipped into anarchy and we’ll have a better idea next week of the effect on the economy of sanctions. Monday’s dollar bond repayment by Gazprom is a test of the Russian government’s (and the government-linked enterprises’) ability to pay foreign debt; while the week’s inflation numbers are expected to demonstrate the fall in the ruble has begun to drive inflation higher.”

As the price of Brent oil topped $120 a barrel at one point, it is worth mentioning that mining and energy equities have profited from the rise in commodity prices. Crude oil concluded the week at $115 per barrel after rising by $25 in the previous month. A 14-year high in wheat prices and an eight-year high in corn prices have been recorded.

After more than a week in which Russia’s military invaded Ukraine, analysts say that Russia’s economic isolation has increased the possibility of a recession in the United States and Europe.

In addition to that on Wall Street, the latest non-farm payrolls report, which showed a substantial increase in jobs creation last month and a significant reduction in unemployment to 3.8 percent, was overshadowed by fears about Ukraine.

Digital Currencies Accelerate

Larry Fink, CEO of BlackRock Inc. (BLK.N), warned that the Russia-Ukraine war might accelerate the use of digital currencies as a means of settling international transactions, upending the previous three decades’ worth of globalization.

A letter Fink sent to shareholders of the world’s biggest asset manager said that the conflict will force nations to reconsider their currency dependence and that BlackRock was exploring digital currencies and stablecoins owing to rising customer demand.

While money laundering and corruption can be reduced by a well-designed global digital payment system, it can also improve international commerce, he added.

When Fink highlighted worries about volatility and stated it was too early to decide if cryptocurrencies were merely speculative trading tools in May of last year, it seemed to have a whole different tone.

Russia-Ukraine conflict puts an end to 30 years of globalization pressures, says chairman and CEO of $10 trillion asset management in a letter.

“Our customers and workers are among the many people I’ve talked to about how we can prevent money from going to Russia during the last several weeks. Our fiduciary obligation is defined as thus, we feel ” – Fink said.

By early October, BlackRock Inc.’s overall client exposure in Russia had fallen to less than one billion dollars from $18 billion before Russia’s invasion of Ukraine, according to information provided by asset management this month.