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Sanctions on Russia, Oil Jumps, Talks Begin – What’s Moving Markets

By Geoffrey Smith — Fresh Western sanctions trigger financial panic in Russia and sharp falls in equities worldwide. The dollar and gold rise. Vladimir Putin puts his nuclear forces on high alert after “unfriendly” moves, while Europe awakes from a 30-year slumber on defense policy. In the U.S., New York City lifts its mask mandate and Lucid Motors is set to report earnings. Here’s what you need to know in financial markets on Monday, 28th February.

1. Russian assets tumble after fresh sanctions

The Russian ruble tumbled after new western sanctions effectively froze over half the foreign reserves of its central bank and shut selected Russian banks out of the global financial messaging network SWIFT. That move will stop almost all payments into and out of Russia, except those directly linked to payment for Russian energy exports.

News of the sanctions triggered mass runs on deposits at Russia’s banks, Around 30% of Russian retail deposits are held in foreign currency.

The Central Bank, which doubled its benchmark rate to 20% to defend the ruble, said that Russia’s stock exchanges would remain closed all day, but depositary receipts of Russian companies listed in Europe, fell sharply, as did Russia-themed ETFs. Governor Elvira Nabiullina will hold a press briefing at 8 AM ET (1300 GMT).

2. Putin puts nuke forces on high alert as EU steps up

In addition to the financial measures announced, the weekend also saw major shifts in European foreign policy, as the continent was jolted into a new assessment of political realities.

Germany announced its biggest increase in defense spending since the end of the Cold War and vowed to spend above the amount recommended for NATO members in the future. The European Union for the first time ever said it would ship lethal weaponry to another country and closed its airspace to Russian commercial aircraft.

On the battlefield, Ukrainian forces continued to frustrate Russian attempts to seize major cities across the country. Unverified reports and social media footage suggested that Russia had responded by launching missile barrages against cities such as Kharkiv to break their resistance.

On Sunday, Russian President Vladimir Putin had placed his country’s strategic nuclear forces on high alert, describing the move as a response to ‘hostile’ actions by the West against Russia.

Despite this, Ukrainian and Russian diplomats are due to meet on the Ukraine-Belarus border later.

3. U.S. stocks set to open sharply lower

U.S. stock markets are set to follow European markets lower when they open later, in a response to the political and military developments.

By 6:15 AM ET, Dow Jones futures were down 443 points, or 1.3%, while S&P 500 futures were down 1.5% and Nasdaq 100 futures were down 1.4%.
HP (NYSE:HPQ), Lucid Motors (NASDAQ:LCID) and Workday (NASDAQ:WDAY) are among companies reporting earnings later.

The situation was also reflected in a rush for haven assets. The dollar index rose strongly, while the yield on the 10-year U.S. Treasury fell six basis points to 1.92%. Gold futures rose another 1.0% to trade back above $1,900 an ounce.

4. Oil and gas prices surge on new fears

Crude oil prices rose sharply, as did European natural gas futures, amid fears that the new sanctions could disrupt energy flows out of Russia, even though they were tailored to avoid doing so.

By 6:15 AM ET, U.S. crude futures were up 4.3% at $95.56 a barrel, while Brent crude was up 4.4% at $96.29 a barrel. U.S. Natural gas futures rose 1.5% to $4.538 per thousand BTUs, in anticipation of heightened demand from Europe to cover shortfalls in supplies from Russia.

Over the weekend, oil giants BP (NYSE:BP) and Equinor (OL:EQNR) said they will start exiting their Russian holdings. BP envisages a hit of up to $25 billion from a fire sale of its 19.75% stake in Rosneft, most of it, albeit in the form of non-cash charges.

5. NYC to lift mask mandate

In brighter news, New York City said it will lift its mandate on people to wear masks in restaurants and entertainment venues as of March 7, another landmark in the country’s emergence from the latest wave of the pandemic.

The nationwide 7-day case rate has now fallen to its lowest since last July.

It’s a different story in China, however, where Hong Kong continues to record unprecedented levels of both new infections and deaths. Figures for the Chinese mainland, which are harder to verify, also continue to show rising case incidences.

Sanctions on Russia, Oil Jumps, Talks Begin – What’s Moving Markets

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