Monday morning brings a new economic reality. Sanctions introduced over the weekend could cripple Russia's banking system and lead the country into a deep recession with the risk of bankruptcy.
The West has finally dared to act with full force, and the first reaction is already visible in the price of the Russian ruble. Although there are problems with its quotations due to the lack of liquidity, it is said to have lost almost half of its value this morning compared to what it was worth on Friday afternoon.
Interest rate: 20 percent. What will Russia's retaliation be?
Russia's central bank reacted by doubling the interest rate, which is already at 20 percent. And this seems only the beginning to further economic and social events that may soon occur in Russia as a consequence of its aggression against Ukraine.
Markets must now weigh what steps Russia will take next in retaliation for the sanctions imposed. At present, however, there is no question of cutting off Europe from gas, oil or grain, of which Russia is the world's main producer. Such actions could raise inflation in Europe and eventually lead to stagflation. However, Russia needs to sell gas and oil because that is the only way it can currently receive the foreign currencies from which it has been cut off.
In the West... with changes, but not much
Western markets, given the scale of events, are not reacting very strongly. Crude oil was up about 5 percent this morning, with WTI rising to over $95 per barrel. Gold costs about $1,900 per ounce. Index contracts in the USA are falling, but the sell-off does not even reach 2 percent. Nasdaq 100 is located at 14000 points, and S&P500 in the area of 4300 points. In Europe, the main index of the French stock exchange CAC40 seems to be losing the most, falling by almost 3 percent to 6558 points. Germany's DAX seems to have fallen by 2.2%, to 14233 points.
Hence, it seems that markets in the West are not panicking at the moment, and trade is taking place in a moderately calm mood. These may also be improved by valuations on the interest rate market. Here, investors have decisively reduced their expectations for rate hikes in the US. The probability for a 50 basis point increase in interest rates has fallen to 4 percent, according to futures market.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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