Calamitous times have led to desperate measures by Russia’s central bank as it tries to stop a domestic run on the banking system and the international flight from the rouble. It’s clear the sanctions hitting Russia are landing serious bruises with the rouble plunging around 30% as investors assess the repercussions of Moscow’s aggression. Russia has become isolated from Western financial markets and step by step is being left out in the cold, outside the reach of crucial transactional networks.
With assets of CBR set to be frozen around the world, it will severely limit Moscow’s ability to access its foreign currency reserves, part of the war chest it had built up, to try and insulate the country from the worst of the economic punishments. The Central Bank of Russia has now more than doubled the key interest rate to 20%, and ordered Russian exporting companies to sell 80% of their foreign currency revenues on the market to try and bolster the rouble.
For now, knock on repercussions for London listed companies appear largely limited, although the FTSE 100 has accelerated losses since the open, down 1.5% after the first hour of trading. But overall it’s been so far a pretty sanguine reaction, especially given the dangerous rhetoric from President Putin and could be seen as a market mark of approval for the tougher action taken against Russia. But more investors are seeking safer havens with gold 0.7% higher, around $1901 an ounce.
BP will feel financial pain as it exits the Rosneft stake with a huge write down expected, so it’s little surprise shares fell by 7% on the open. However, given the scale of the impairment charges expected, the reaction is pretty limited, illustrating that investors feel the reputational damage of continuing to do business with Russia could be more damaging long term. BP is leading the way by opening up a new channel of censure, with its course of action followed by Norway’s Equinor which has also announced it’s divesting its smaller Russian joint operations.
More difficulties though are expected to come for Western companies, as the conflict is set to keep costs of crucial commodities elevated. Oil has again marched up above 101 dollars a barrel, up 3.5% while UK natural gas prices are also up by more than 3% to 272 pence a therm. With Russia targeting gas pipelines in Ukraine, supplies to Europe could face further disruption pushing up the costs on international exchanges.
Disruptions to wheat and corn supplies around the Black Sea region are becoming worse as the fighting intensifies in Ukraine, with ports shut down and Russia facing increasing difficulties with exports. The two countries account for around 29% of global wheat exports, 19% of world corn supplies, and 80% of world sunflower oil exports.
Wheat contracts traded in Chicago are expected to surge today to levels not seen since 2012, with futures prices spiking by more than 8% earlier to $9.35 a bushel, while corn contracts rose by 5%. This will pile the pressure on food producers further, already grappling with higher transport and logistics costs.
Volkswagen has had to limit production at two German car plants due to delays in the supply of key electric wires components from Ukraine. Renault is also being forced to suspend operations at its car assembly factories in Russia due to supply bottlenecks. With waits for new cars set to become even longer, prices of second hand vehicles, which have been a key inflationary driver, risk rising yet again.