World

Once-bitten markets are ignoring Putin’s warnings again at their own peril

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

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LONDON, Sept. 21 (Reuters) – Earlier this year, markets were complacent as Russia rallied troops on the border with Ukraine. Now they are once again largely disregarding Vladimir Putin’s signal that he might be willing to use nuclear weapons.

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World stocks suffered an early blow to risk appetite on Wednesday after Putin mobilized more troops for Ukraine and threatened to use Russia’s entire 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 marked a major escalation of the war, now in its seventh month. read more

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And while safe-haven assets such as the dollar, which peaked in two decades against other major currencies, and government bonds in Germany and the United States rose, equity markets did not appear to be too upset.

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European equities recovered from previous declines and mostly rose (.STOXX), while major Wall Street indices – already bracing for another aggressive hike in US interest rates later in the day – opened higher on Wednesday.

“In January and February, when Russian troops were mobilized, market participants mistakenly interpreted it as a bluff to increase Putin’s bargaining power, but then Putin exceeded expectations by going for a full-scale invasion of Ukraine,” said Tina Fordham, a senior executive. independent geopolitical strategist and founder of Fordham Global Foresight.

“The most important aspect of what the markets are not praising right now is the potential for Russia to use an unconventional weapon, i.e. a tactical chemical or a nuclear weapon,” she added, noting that Putin in in this regard had made some threatening remarks about the “blowing wind”.

Fordham said that while Putin would likely stop with a full-blown unconventional attack, it was in his “playbook” to cause maximum instability.

The Cost of War

The MSCI World Stock Index is down 21% this year and the Europe STOXX 600 Index has lost 16% – both are on the cusp of their worst year since 2008, when the global financial crisis erupted. The Russian invasion of Ukraine, initially seen as an outlier, has dealt an additional blow to global markets that are still adjusting to a period of decades of high inflation and soaring borrowing costs from the Federal Reserve and the US, among others. European Central Bank .

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Europe in particular has suffered as Russia cut off gas supplies, pushing energy prices up and putting pressure on consumers and businesses, increasing the risk of a recession.

Germany’s and Italy’s reliance on Russia has made their stock markets some of the worst performing in the world this year. Those close to the fighting, including Poland and Hungary, have also seen their local markets ravaged. Investors have also dumped the bonds of countries with high gas or wheat import bills.

Stock markets hit hardest by Russia-Ukraine war

Chris Weafer, chief executive of Macro-Advisory, a consultancy that advises companies on doing business in Russia, said Moscow was preparing for a long conflict, including ongoing energy cuts, and could afford the confrontation better than Europe.

“There was a feeling in Europe that Russia would look for a compromise. Today’s announcement makes it clear that this is incorrect,” he said. “Russia is digging in for the long haul. They’re willing to fight it out.”

Arne Petimezas, senior analyst at AFS Group in the Netherlands, said Putin was underestimated.

“He’s escalated every time. For him it’s life and death. I don’t see why his next move will be de-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: The Thomson Reuters Trust Principles.

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