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Investors brace for volatility as West moves to cut Russia off from SWIFT

Published Feb 26, 2022 07:43PM ET Updated Feb 27, 2022 02:06AM ET
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© Reuters. FILE PHOTO: A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., February 18, 2022. REUTERS/Brendan McDermid
 
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By Davide Barbuscia, Catherine Belton and Ira Iosebashvili

NEW YORK/LONDON (Reuters) -Investors were preparing on Saturday for more wild gyrations in asset prices after Western nations announced a harsh set of sanctions to punish Russia for its invasion of Ukraine, including blocking some banks from the SWIFT international payments system.

New measures announced by the United States, Britain, Europe and Canada also include restrictions on the Russian central bank's international reserves. The moves will be implemented in the coming days.

Investors have feared Russia would get kicked off SWIFT, the world's main international payments network, as this would disrupt global trade and hurt Western interests as well as hit Russia.

"It means there is going to be a catastrophe on the Russian currency market on Monday," said former Russian Central Bank Deputy Chairman Sergei Aleksashenko. "I think they will stop trading and then the exchange rate will be fixed at an artificial level just like in Soviet times."

Michael Farr, chief executive of financial consulting firm Farr, Miller & Washington LLC, said of the impact on global markets, "This could be a surprise that is not taken very well if it means a slowdown in international trade.”

The news comes after a week when worries over the intensifying conflict in Ukraine shook markets across the world. Stocks tumbled and oil prices soared as investors rushed to gold, the dollar and other safe havens.

Many of those safety moves were at least partially unwound on Thursday and Friday, and U.S. stock markets rallied to close up for the week.

The latest measures could send markets on another wild ride, as traders assess the implications for the global economy, including potentially higher commodity prices and inflation. The war between Russia, one of the world’s biggest raw materials’ exporters, and Ukraine has already helped push up oil prices to their highest level since 2014.

The S&P 500 is off 8% for the year to date, dragged down by worries over geopolitical strife and a more hawkish Federal Reserve.

"A lot of traders were kind of becoming convinced that the U.S. and Europe were not taking a hard stance,” said Edward Moya, senior market analyst at OANDA. “This action will be really difficult to digest and it will really pick a nerve for a lot of investors. ... A lot of the rebound we saw in the latter half of last week will be tested.”

Mohamed El-Erian, part-time chief economic adviser at Allianz (DE:ALVG) and chair of Gramercy Fund Management, said excluding Russia from SWIFT “has the potential to cripple the economy there" if done comprehensively.

"Inevitably there would be spillovers and spillbacks, including more of a stagflationary impetus to the global economy and greater likelihood of Russian arrears to Western companies and creditors," he said, in emailed comments.

Tom Martin, senior portfolio manager at Globalt Investments, said the move is going to continue fueling demand for gold, Treasuries and other popular destinations for nervous investors.

“SWIFT is going to be painful and the markets are going to recognize that,” he said. “What you are going to get is continued volatility as all the participants are going to be adjusting their risk tolerance.”

One likely casualty will be the Russian rouble, investors said. Russia’s currency fell to an all-time low against the U.S. dollar in the past week, though it pared some of those losses on Friday.

“With the central bank likely to face severe constraints on currency intervention, the rouble will struggle to find a bottom,” said Karl Schamotta, chief market strategist at Corpay. “No one wants to catch a falling knife."

Some investors, however, said the markets could put a positive spin on the fresh measures as Western troops had not joined the war.

“It’s the closest thing to a declaration of war from a financial perspective," said Ross Delston, a U.S. lawyer and former banking regulator. "It’s going to result in Russia being viewed as radioactive by U.S. and EU banks, which in turn would be a major barrier to trade with Russia.”

Investors brace for volatility as West moves to cut Russia off from SWIFT
 

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Comments (14)
Martin Wall
Martin Wall Feb 27, 2022 8:25AM ET
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This is all down to sleepy Joe. If Trump was in power Putin wouldn't have dared do it
Marco cuevas
Marco cuevas Feb 27, 2022 8:25AM ET
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No republican president has to dealt with Russia invading other countries....what does that tell you? Go.read some.history and.get.educated.
Maximus Maximus
Maximus Maximus Feb 27, 2022 8:25AM ET
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Everybody knows trump is putins bitc#
Benjamin USA
Benjamin USA Feb 27, 2022 8:25AM ET
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Lmfao yeah big D trump will save us all!!! What a simp lmfao
jonathan seagull
jonathan seagull Feb 27, 2022 8:04AM ET
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Putin can sell US treasuries and save Rubles/USD
Mehmet Öztürk
Mehmet Öztürk Feb 27, 2022 7:57AM ET
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Rest for a while, then the market will calm and trade opportunities will follow. Patience pays..
Maximus Maximus
Maximus Maximus Feb 27, 2022 7:52AM ET
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Enjoy the russian run on the bank next week. Nobody in their right mind will keep money in a russian bank after this
David Abaidoo
David Abaidoo Feb 27, 2022 3:55AM ET
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in this dispensation, it's unwise to get a demand through the muzzle.
gab nea
gab nea Feb 27, 2022 2:12AM ET
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for every action there is a reaction, did putin miscalculate? *******wasn't crazy at the beginning either.
IceIce Baby
IceIceBaby Feb 27, 2022 2:12AM ET
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I don't think he calculated personally. But when someone reports to a strong personality person like Putin then it can happen the calculator delivers better results than reality just to avoid confrontation.
Benjamin USA
Benjamin USA Feb 27, 2022 2:12AM ET
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John Hat
John Hat Feb 27, 2022 12:09AM ET
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Putin is pooting.
Jef Kai
Jef Kai Feb 26, 2022 11:48PM ET
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Do not underestimate Rusia …they have many the brightest mind in the planet
Maximus Maximus
Maximus Maximus Feb 26, 2022 11:48PM ET
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Thats why the good people in russia will sooner or later rise up from the oppression and oust the mad dictator putin
IceIce Baby
IceIceBaby Feb 26, 2022 11:48PM ET
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And still... they've voted for Putin.
Benjamin USA
Benjamin USA Feb 26, 2022 11:48PM ET
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IceIce Baby some yes, as many as were reported? Most likely not
Ac Tektrader
Ac Tektrader Feb 26, 2022 10:28PM ET
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The USA will bring down putin...... it's already started....
Don Getty
Don Getty Feb 26, 2022 10:28PM ET
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russian oligarch's who see there net worth vanish will bring down Poutine - once the commodities start to stack up at the docks and the workers are suddenly out of work there will be serious outfall in Russia
Maximus Maximus
Maximus Maximus Feb 26, 2022 10:28PM ET
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Russians don't listen to oursiders much. Change must come from within, and it will. When their standard of living plummets, partly due to the sanctions, but mostly because of putins theft, mismanagement, and failed war, the people will rise up against the regime
John Laurens
John Laurens Feb 26, 2022 8:42PM ET
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Awesome - bring it! Russia is worthless. What do they bring other than gas? Return to Trump’s energy independence immediately!  ‘22 ‘24
taylor jason
taylor jason Feb 26, 2022 8:42PM ET
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if only the current elected officials didn't campaign on oil/gas is bad m'kay. but I agree, let us become the world largest energy exporter
Peoples Bank of China
Peoples Bank of China Feb 26, 2022 8:42PM ET
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IKR? Only the markets for cheap Lada, Vodka, and automatic watches are in shambles haha
Benjamin USA
Benjamin USA Feb 26, 2022 8:42PM ET
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Trump gets down on his knees for russia, he has to since they fund a significant share of us conservative media budget after all
 
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