“Russia treacherously attacked our state in the morning,” Volodymyr Zelenskiy said, in a social media message explicitly equating Vladimir Putin’s military actions to those undertaken by Nazi Germany. “As of today, our countries are on different sides of world history,” he added. “Russia has embarked on a path of evil, but Ukraine is defending itself and won’t give up its freedom no matter what Moscow thinks.”
Markets were in a state of utter disbelief Thursday, as traders struggled to sort through a surreal barrage of headlines triggered by Putin’s decision to invade his neighbor. The Russian army crossed the country’s border in four regions — tank columns and all.
Zelenskiy imposed martial law and described battles with Russia in the east, north and south of the country. Foreign Minister Dmytro Kuleba said Ukraine “will win.” It won’t, of course.
Read more: Putin Invades Ukraine
Ukraine’s central bank unveiled a variety of temporary restrictions in connection with Zelenskiy’s martial law order. Ukraine’s FX market was suspended, except for FX sales by customers. Cash withdrawals from client accounts are limited to UAH 100,000 per day, except for businesses and institutions vital to “ensur[ing] the implementation of the government’s mobilization plans.” Foreign currency cash withdrawals are prohibited and a moratorium placed on cross-border foreign currency payments. Residents who’ve participated in “armed aggression against Ukraine” won’t be able to make debit transactions. Yields on Ukraine’s dollar bonds rose to a DeFi-esque 88%.
The fallout in Russian assets was astounding. Russian stocks plunged as much as 45%. That’s not a typo. At the lows, the Russian stock market lost nearly half its value in a single day (figure on the left, below).
By the close, shares trimmed losses. The MOEX was down “just” ~30% (figure on the right, above).
The ruble, meanwhile, dropped almost 10% at one juncture, a lira-like implosion that underscored just how tenuous the situation really is. The Bank of Russia quickly intervened, pledging to “ensure the maintenance of financial stability and business continuity of financial institutions by using all the necessary tools.”
If the situation deteriorates, Russia will have to deploy its FX reserves. Next, they’ll need emergency rate hikes. After that (and again assuming ongoing pressure), some manner of capital controls could become necessary.
At one point Thursday, Sberbank said it was added to sanctions lists and banned from FX operations. The bank later retracted the statement citing “a website malfunction.” Obviously, they had a prepared statement and mistakenly issued it. The same announcement sought to ensure Russians that the bank “has enough ruble and FX cash” to meet demand. The shares plunged some 50% on Thursday. Have a look at the figure (above). Does that look “resilient” to you?
Note to put too fine a point on it, but this is precisely what I attempted to convey earlier this week, with little success. Russia, for all its bluster, isn’t prepared for an all-out Western financial and economic embargo. In the simplest possible terms, its currency, banks and, eventually, companies, will collapse. Thursday was a preview. It can (and will, depending on what path Putin chooses) get materially worse. Russia’s credit default swaps jumped to levels not seen since 2009.
Boris Johnson called for a G-7 meeting “as soon as possible.” “This is a catastrophe for our continent,” he said. Brussels was poised to unveil a “massive” package of sanctions.
According to Interfax, units of the Russian military in Moldova’s separatist Transnistria region began conducting “practical exercises” and “training” maneuvers on Thursday. Moldova’s president asked lawmakers to declare a state of emergency.
Thanks, as always for your perspective, H. There’s another side of the coin, so to speak, probably bitcoin.
Seems that Putin’s gambit rides on his confidence that $680 billion in savings he has set aside to get Russia through this temporary challenge will do a superlative job of buttressing his glorious economy while he invades Ukraine, Moldova, etal., coldly murdering a bunch of human beings, and threatening nuclear holocaust. I reckon he is looking forward to pounding his chest when it’s over next week, after NATO rolls over in submission to his grand plan.
No amount of reserves can help if your country’s banks and corporates are cut off from dollars, especially if Yellen decides to engineer a currency crisis. If she were to do that, first you’d hear the usual defiant nonsense from the Kremlin and then, six months later, desperate accusations of economic “terrorism” and pleas for help from Beijing. He (Putin) is going to ruin his country. He’s lost his mind.
Agree, H. The truly insane part is that Putin has already put the nuclear card on the table. And he says he will play that card if NATO tries to stop him by engaging his troops in Belarus, Ukraine, wherever.
To your point: NATO will have to restrain itself as human beings are slaughtered in Eastern Europe.
I’ll be interested to see Byarne’s perspective about this insanity.
I wonder if the NATO countries took this same approach when Hitler started HIS Blitzkrieg?
NATO didn’t exist?! But France and UK went to war over the invasion of Poland, not exactly an existential threat to either.
OTOH, there weren’t nukes in play so you couldn’t invade another country under the protection of your nuclear umbrella (see US and Iraq for a somewhat similar situation to today’s invasion of Ukraine by Putin)
Spot on…
Putin is burning his boats, economically. He is accepting the implosion of the Russian economy to push the country to desire his own ends, global expansion. With no trade partners, the only way to get the goods they require is to take them by force. Since the west and the US specifically have stated they will not commit any security forces to this current conflict, he knows he will face little resistance as he begins his reconquering of eastern Europe. Biden once again shows he is unwilling to to challenge the people he wishes would cooperate with him. Just like with Republicans domestically his desire to reach across the aisle with Putin will ultimately be his and United States democracy’s undoing. Meanwhile you have right wing media defending Putin and attacking democrats as the “real enemy” which brings up questions for me about where they are getting funding from. When does Xi begin his Asia-Pacific conquest?
China will play it cool. They will stand between Russia and the US, benefitting as much as it can from both. Richard Haas, head of the Council on Foreign Relations, offered an opinion about it in the Times this morning: https://www.nytimes.com/section/opinion.
The current right wing media extremist funding opens up questions that go back to WWII politics. The red scare, cold war and fall of Berlin wall connect a long period of spying and propaganda to our very twisted cyber wars and polarized Fox news disinformation power.
The Ukraine Gambit is probably part of a larger attack and strategy. I agree with H that Putin has lost his mind, but, this drama seems somewhat too surreal, too naked in it’s simplicity, it doesn’t make a lot of sense in terms of an end game. Thus, what else is going on here? Is this Ukraine attack part of a wider plan to cause instability and capitalize on pandemic dynamics? Is this a fragile moment where Putin gets more bang for his buck in causing chaos?
The Putin attack obviously can take advantage of sleepyhead Joe and the lame duck presidency and the squabbling weak handed Democrats, thus, it makes sense that Republicans will seize the day to support Putin and spin domestic weakness into an overarching plot to help Putin sow chaos.
Is it insane to think the GOP will crawl in bed with communism or fascism and do whatever it takes to gain control? Maybe it’s too convenient to see patterns, but I’m somewhat concerned about the crowd sourcing funding fueling convoys of trucks to Washington, on their way to cause chaos, in the name of freedom, but between the Fox megaphone, Putin insanity, I’m getting an Arab spring vibe that’s making me anxious.
There is always (ALWAYS) a bull market in stupidity….
All eyes are on the US, but watch Germany.
The US could economically stifle Russia without serious consequences to itself. Russia’s economy is smaller than Italy, it’s economic exports are almost entirely oil & gas, in which the US is the largest global producer or close to it and thus self-sufficient, and it depends on imports for its machinery and technology, much of which relies on US components and almost all of which relies on USD.
What protects Russia, or so Putin thinks, is that Europe depends on Russian gas (more than Russian oil, since oil is easily transported around the world). No major European country is more dependent than Germany, which is also the economic center of Europe and dictates or at least can veto European actions. This is his leverage to split the US from Europe, divide NATO, and escape major consequences.
So, watch Germany. The country can manage without the 30% of its gas supply that comes from Russia, but only at great cost and with drastic, urgent, and coordinated actions. Is it willing to suffer the cost and take those actions? What does the German government, business, citizenry think about this? That is not being reported much (at least in the US) and yet is, in my opinion, the critical factor.
JYL – don’t forget that Russia is also the #1 wheat exporter, with Ukraine close behind. Along with their dear friends and allies in Belarus, they also are a major producer of fertilizer.
They also control much of the world’s titanium and other key metals we must import from them. They are global experts in the forging of titanium.
@derek and @Mr. Lucky – understood, but wheat and potash are moved around the world, NG is harder to transport (good job Germany, not building any LNG terminals and handing domestic NG storage to Gazprom). Titanium is mined all over, with China the largest producer.
ironically this action may benefit Biden, the US dems, and progressives worldwide as they’re at their political effective best when in reactive mode … we’ll all be finding out soon enough…let’s hope…though heartbreaking for the Ukrainian people who deserve far better…