Weekend developments around Russia/Ukraine continue to roil markets. Banning certain Russian banks from the SWIFT system is an aggressive move that may yet prompt a response from the Russian authorities (by cutting key energy exports, for example). For markets, the SWIFT move may mean some strain on international payments and, possibly, market liquidity. Cross currency swaps suggest pressure on USD funding via cross currency basis swaps is already emerging. Some have speculated that central banks may need to provide USD liquidity to ease strains.
Measures to restrict the Russian central bank from utilizing its reserves to circumvent sanctions may augment domestic economic and systemic stresses and Russian bank subsidiaries outside of Russia may fail. More directly, the RUB has plunged, the Russian central bank has raised its benchmark rate to 20% and the local stock market is closed today. Global stocks are down and European bank shares a sharply lower. US equity futures are in the red and bonds have jumped as investors move to safety. Gold, wheat and crude are higher. Energy prices are firmer but off early highs. The USD is broadly stronger but trading off its early high also, with only the CHF and JPY outperforming on the session. High beta, less liquid (ZAR, MXN) FX is weaker, while the SEK and NOK continue to lag among the majors. Russia/Ukraine will continue to shape trading from a risk perspective but focus on liquidity issues is likely to remain a key area of concern for markets in the short run.
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