The once bitten markets are again ignoring Putin’s warnings at their own peril

Russian President Vladimir Putin delivered a speech at an event that marked the 100th anniversary of the founding of the republics of Adygea, Kabardino-Balkaria and Karachay-Cherkessia in Moscow, Russia on September 20, 2022. Sputnik / Grigory Sysoev / Pool via REUTERS

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LONDON, Sept. 21 (Reuters) – Earlier this year, markets were content when Russia amassed troops on the Ukrainian border. Now, once again they are shaking off Vladimir Putin’s signal that he may be ready to use nuclear weapons.

On Wednesday, world stocks withstood an initial blow to risk appetite after Putin mobilized more troops for Ukraine and threatened to use all of Russia’s arsenal against what he called the West’s “nuclear blackmail” during the war there. Read more

It was Russia’s first such mobilization since World War II and meant a major escalation of the war, now in its seventh month. Read more

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And while safe-haven assets like the dollar, which hit a two-decade high against other major currencies, and government bonds in Germany and the US rose, equity markets didn’t seem too troubled.

European equities trimmed previous lows and mostly rallied (.STOXX), while major Wall Street indices – set for another aggressive US interest rate hike later in the day – opened higher on Wednesday.

“In January and February, when Russian troops were mobilized, market participants misinterpreted it as a bluff to increase Putin’s negotiating leverage, but then Putin exceeded expectations by aiming for a complete invasion of Ukraine,” he said. Tina Fordham, independent geopolitical strategist and founder of Fordham Global Foresight.

“The most significant aspect of what the markets are not evaluating now is the potential for Russia to use an unconventional weapon, which is a tactical chemical or a nuclear weapon,” he added, noting that Putin had made some ominous remarks in this regard on the “Wind that blows”.

Fordham said that while Putin likely would have stopped before a full-blown unconventional attack, it was precisely in his “playbook” to cause the greatest instability.

The costs of the war

The MSCI World Stock Index fell 21% this year and the Europe STOXX 600 Index lost 16% – both are poised for their worst year since 2008, when the global financial crisis erupted. The Russian invasion of Ukraine, initially perceived as an anomalous event, dealt an extra blow to world markets that are still adjusting to a period of decades of high inflation and a sharp increase in borrowing costs from the likes of companies. the Federal Reserve and the European Central Bank.

Europe in particular suffered as Russia stifled gas supplies, driving energy prices up in a squeeze on consumers and businesses that increased the risk of recession.

Germany and Italy’s dependence on Russia made their stock markets some of the worst performing in the world this year. Even those close to the fighting, including Poland and Hungary, have seen their local markets get punched. Investors also ditched the bonds of countries with high gas or grain import costs.

Equity markets were the hardest hit by the Russia-Ukraine war

Chris Weafer, chief executive of Macro-Advisory, a consultancy firm that advises companies to do business in Russia, said Moscow is bracing itself for a protracted conflict, including the continued limitation of energy supplies, and that it could afford. the best confrontation of Europe.

“There was a feeling in Europe that Russia would seek a compromise. Today’s announcement makes it clear that this is incorrect,” he said. “Russia is digging in the long run. They are ready to resist.”

Arne Petimezas, senior analyst of the AFS group in the Netherlands, said Putin was underestimated.

“It has escalated every time. For him, it’s life or death. I don’t see why his next move will be a reduction in escalation unless he wins,” Petimezas said.

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Additional reporting by Yoruk Bahceli in Amsterdam and Marc Jones in London, edited by William Maclean

Our Standards: Thomson Reuters Trust Principles.

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