The Russian stocks witnessed a drop on Tuesday morning when president Vladimir Putin recognized in a televised addressed Luhansk and Donetsk in eastern Ukraine as independent entities. He said in the live message that Ukraine is an integral part of Russian history.
The rouble lost 3.3 percent and the Russian stock markets were at the lowest level in more than a year. The rouble-based MOEX Russian index declined 10.5 percent while the dollar-dominated RTS index closed 13.2 percent on Monday.
Tensions between Russia and Ukraine have rattled the global markets and escalation due to the televised address is expected to be causing much worse. Tens of billions of dollars have been wiped off the value of assets in the two countries.
Emerging market portfolio manager at London's abrdn, Viktor Szabo, said it is still an understatement to comment that Tuesday will be an ugly day.
Commonwealth Bank of Australia analysts meanwhile has warned traders the tensions could be further exacerbated due to the live address of Putin recognizing the separatist-held areas of Ukraine. Financial market participants are waiting for responses from Europe and the United States. The responses could be in the form of new sanctions.
However, it is expected other steps would be witnessed first before the sanctions are witnessed. The Russian banks could be cut off from the SWIFT banking system and the US, UK and EU investment funds holding Russian government bonds could be banned. Foreigners held more than $43 billion of OFZ by 2021-end as rouble had dominated the bond markets. Foreigners held more than $43 billion of OFZ by 2021-end as rouble had dominated the bond markets.
British Foreign Minister Liz Truss said Britain and the EU have agreed to coordinate the swift banking system sanctions and stand with Ukraine. His statement emerged after a call with EU foreign policy chief Josep Borrell.
Russia has one of the biggest reserves of international forex and it is at $630 billion. However, it is simultaneously to be understood that the cost of insuring the sovereign debt against default has jumped high since early 2016. It has been frequently warned that the impact on global market confidence could be wider. The Russia-Ukraine tensions have lately raised the global borrowing costs.
The futures markets have witnessed a fall of 1.8 percent on the S&P 500 on Wall Street, a 2.5 percent decline has been noticed on the Nasdaq,Â Japan's Nikkei dropped by 2.2 percent and Germany's DAX dropped by 3.7 percent.
Kace Capital Advisors managing partner Ken Polcari said a negative reaction would be on the card.