Oil prices and safe havens surged on Monday while the rouble and European equities sank after world powers imposed fresh sanctions on Russia over its invasion of Ukraine, fanning fears about a possible global energy crisis that could further stoke inflation.
However, most Asian equity markets recovered from morning selling as traders focus on a planned meeting of Ukraine and Russian officials on the border with Belarus hoping for an easing of the offensive.
Russian President Vladimir Putin’s decision to send troops across the border last week has sent shivers through trading floors as investors fret over a protracted war in the resource-rich region.
Adding to the unease among investors was news that Putin had put his nuclear forces on a higher alert in reaction to the latest stiff measures.
Equities rallied on Friday and oil dipped as dealers assessed that the punishments imposed on Moscow were light enough to not hit its crucial oil exports – Russia is the world’s third-biggest producer – at a time when supplies are thin and demand is surging.
But the picture changed at the weekend, when the United States and European Union said they would exclude some Russian banks from the international bank payments system SWIFT and personally targeted Putin and Foreign Minister Sergei Lavrov.
They also banned all transactions with Russia’s central bank, sending the rouble crashing. News that the central bank had hiked interest rates to 20% – the highest since 2003 – helped pare the unit’s losses only briefly.
“Removing some Russian banks from SWIFT could result in a disruption of oil supplies as buyers and sellers try to figure out how to navigate the new rules,” Andy Lipow, of Lipow Oil Associates in Houston, noted.
Crude surged, with WTI climbing towards the $100 mark, while Brent bounced back above that level after slipping on Friday.
Other commodities rallied, with wheat, aluminium and nickel also sharply higher.
Ukraine Talks Buoy Asia Markets
European stocks opened sharply lower, with London off more than 1% while Frankfurt and Paris gave up about 2%.
But most of Asia’s equity markets bounced back from morning selling over the news of planned talks between Ukraine and Russian officials.
Tokyo’s benchmark Nikkei 225 index added 0.19%, or 50.32 points, to end at 26,526.82, while the broader Topix index climbed 0.57%, or 10.69 points, to 1,886.93.
Hong Kong’s Hang Seng Index fell 0.24%, or 54.16 points, to 22,713.02. The Shanghai Composite Index rose 0.32%, or 10.90 points, to 3,462.31, while the Shenzhen Composite Index on China’s second exchange gained 0.35%, or 8.03 points, to 2,318.09.
Traders will be closely watching a meeting this week of OPEC and other major producers led by Russia, where they will discuss plans for further output.
The group had agreed previously to increase production gradually each month, but the Ukraine crisis could throw those plans into disarray.
Gold, Yen, Dollar Rise
Gold and the yen, go-to assets in times of uncertainty, rose, while the dollar was up against all other currencies.
The euro was under pressure owing to Europe’s reliance on Russian energy.
The surge in prices is adding to worries about inflation, which is running at a 40-year high in the United States, with central banks already fighting an uphill battle to get it under control.
The conflict is “likely to boost energy prices significantly, resulting in immediate inflationary effects and a large drag on global growth,” Silvia Dall’Angelo, a senior economist at Federated Hermes, wrote in a note.
“It’s fair to say that the crisis increases the room for central banks’ policy mistakes.”
Key figures around 0820 GMT
Tokyo > Nikkei 225: UP 0.2% at 26,526.82 (close)
Hong Kong > Hang Seng Index: DOWN 0.2% at 22,713.02 (close)
Shanghai > Composite: UP 0.3% at 3,462.31 (close)
London > FTSE 100: DOWN 1.1% at 7,404.78
New York > Dow: UP 2.5% at 34,058.75 (Friday close)
West Texas Intermediate > UP 4.1% at $95.34 per barrel
Brent North Sea crude > UP 3.9% at $101.76 per barrel
- AFP with additional editing by Sean O’Meara