Investors brace for volatility as West moves to isolate Russia from Swift

NEW YORK/LONDON, Feb 26 (Reuters) – Investors braced on Saturday for more violent swings in asset prices after Western countries announced a raft of harsh sanctions to punish Russia for its invasion of Ukraine, including blocking some banks from the SWIFT international payments system. .

The new measures announced by the United States, Britain, Europe and Canada also include limits on the international reserves of the Russian Central Bank. The moves will be implemented in the coming days. Read more

Investors fear that Russia will be expelled from SWIFT, the world’s main international payments network, as this would disrupt global trade, harm Western interests and also harm Russia. Read more

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“This means that there will be a catastrophe in the Russian currency market on Monday,” said former Russian Central Bank deputy head Sergei Alekashenko. I think they will stop trading and then the exchange rate will be fixed at an artificial level like in the Soviet era.

Michael Farr, CEO of financial advisory firm Farr, Miller & Washington LLC, said of the impact on global markets, “This might be a surprise not taken well if it means a slowdown in international trade.”

The news comes a week after concerns about the escalating conflict in Ukraine rocked markets around the world. Stocks tumbled and oil prices rose as investors rushed to gold, the dollar and other safe havens.

Many of these safety moves were at least partially canceled on Thursday and Friday, and US stock markets rallied to close this week. Read more

Recent actions may send markets on another wild ride, as traders assess the implications for the global economy, including higher commodity prices and potential inflation. The war between Russia, one of the world’s largest exporters of raw materials, and Ukraine has already helped push oil prices to their highest level since 2014.

The S&P 500 is down 8% year-to-date, weighed down by concerns about geopolitical conflict and a hawkish Federal Reserve presence.

A trader works at the New York Stock Exchange (NYSE) in New York City, US, February 18, 2022. REUTERS/Brendan McDermid

Edward Moya, chief market analyst at OANDA, said: “A lot of traders are becoming somewhat convinced that the US and Europe are not taking a hawkish position. This is going to be really hard to fathom and is really going to get a lot of investors… A lot of the recovery we’ve seen will be tested. in the latter half of last week.”

Mohamed El-Erian, part-time chief economic adviser at Allianz and head of Gramercy Fund Management, said excluding Russia from SWIFT “has the potential to cripple the economy there” if done comprehensively.

“There will inevitably be repercussions and setbacks, including more stagflationary momentum for the global economy and a greater likelihood of Russian arrears to Western companies and creditors,” he said in comments via email.

The move will continue to fuel demand for gold, Treasuries and other popular destinations for anxious investors, said Tom Martin, senior portfolio manager at Globalt Investments.

“Swift will be painful and the markets will realize that,” he said. “What you will get is continued volatility as all participants will adjust their risk tolerance.”

Investors said the Russian ruble would be one potential loss. The Russian currency fell to an all-time low against the US dollar last week, although it pared some of those losses on Friday.

“With the central bank potentially facing severe restrictions on currency intervention, the ruble will struggle to find a bottom,” said Karl Chamota, chief market strategist at Corpay. “No one wants to catch a falling knife.”

However, some investors said that the markets could set a positive trend in the new measures because Western forces did not join the war.

“It is the closest thing to a declaration of war from a financial perspective,” said Ross Dillston, a US attorney and former banking regulator. “It would result in Russia being seen as radioactive by US and EU banks, which in turn would be a major impediment to trade with Russia.”

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(Additional reporting by David Barbuscia, Ira Eosbashvili, Catherine Pelton, Megan Davis, Saqib Iqbal Ahmed, and Michelle Price.) Editing by Baritusch Bansal, Leslie Adler and Cynthia Osterman

Our criteria: Thomson Reuters Trust Principles.

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