3 March, Zurich

Ukraine as Achille’s Tendon

News over the military tensions out of the region during last days are less than encouraging for stock market. They have not been positively taken at the open on Monday by Russian stocks, bonds, and the ruble.

Russia is already paying an economic price for its actions in Ukraine.

The Russian Central Bank was forced to hike interest rates over night from 5.5% to 7% in order to stem the plunging Russian ruble. And the stock market has actually crashed. The MICEX index, the country’s benchmark index, is down 8% in early going.

Source: Bloomberg

The market has already been quite bearish on Russian assets this year, particularly the ruble. But the prospect of sanctions and an expensive conflict are leading to swift punishment in the market.  And it is by far not the best timing.

The latest manufacturing PMI report that came out this morning is not full of hopeful outlook.  Russia is seeing its fourth straight month of contractions, with a reading of 48.5. New business developments and employment in Russian companies both declined, with new orders seeing their fastest contraction since 2009.

The market has already been quite bearish on Russian assets this year, particularly the ruble. But the prospect of sanctions and an expensive conflict are leading to swift punishment in the market. Therefore, a hike in interest rates and a stock market crash is not what Russia would really need today./RLU