Powerful sanctions hit risk appetite

We’re seeing widespread risk aversion once more on Monday after new severe sanctions were levied against Russia over the weekend.

The response to previous sanctions was underwhelming, to say the least, but the latest batch undoubtedly has the teeth that the others lacked. That’s been most clearly evident in the FX markets, where the rouble plunged more than 30% to record lows and that could have been much worse but for swift action by the central bank.

An emergency rate hike – raising the key rate from 9.5% to 20% – alongside other measures, has enabled the rouble to pare those initial losses but the currency remains under severe pressure. The latest sanctions are hard-hitting and will weigh heavily on the economy. And that’s before we see the second-round effects.

BP has shown us today the political pressure that companies are going to be under to sever ties with Russia, especially where there’s shared interest with the Kremlin. The level of horror at the events in Ukraine being experienced around the world, combined with that political pressure, will continue to see companies cut ties which will compound the impact of the sanctions.

Whether we continue to see more risk-aversion in the markets may well hang on the talks currently taking place between Russian and Ukrainian officials. It’s hard to imagine a ceasefire and Russian exit being agreed upon given the events of the last week but we live in hope.

An agreement would naturally lift sentiment and we could see stocks quickly reversing their losses. A failure could see things turn ugly again as Russia will not take these sanctions lying down. They will have massive implications for the Russian economy and retaliation is almost certain.

Bitcoin lower but resilient

Bitcoin is also lower on the day as traders abandon risk assets in favour of safe-havens. It’s continuing to show resilience though which will encourage the crypto crowd. As long as it continues to weather the storm and hold above USD 30,000, there will be a belief that it can thrive again once risk appetite improves. Unfortunately, there’s just no clear idea of when that will be.

For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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