The Invasion Of Crimea Is Crushing Russia's Stock And Currency Markets

[mota bhai 2,675]

by Mark Adomanis

... the first weekday since the invasion gave us a better idea of the invasion’s impact on the Russian economy and, if anything, it’s even worse than I expected. The stock market has been absolutely pummeled: as of the time that this piece was written (around 7:30 am on Monday the 3rd) the MICEX was down by 11.2% and the RTS was down by 12.8%. As the Financial Times noted, the sell-off did not spare the companies that function as bastions of the Russian state: Gazprom was down 10.7% and Sberbank was down by 9.8%.

The activity in the currency market might have been even worse. The ruble reached all-time lows against both the dollar and the euro, falling by 2.5% and 1.5% respectively. The rout in the currency market was so great that the Russian central bank was forced to aggressively intervene. In order to support this intervention it “temporarily” raised interest rates from 5.5% to 7%. I thought it was possible that the central bank would eventually have to raise interest rates in order to combat a weakening ruble, but I didn’t think this would happen for several months (until now, the consensus expectation was that the central bank would leave interest rates alone until the summer or fall). Russia’s economy is already limping along at around 1.5% growth, and sudden monetary tightening could very well drive it into recession.

...

What happened on Monday gave us some insight into what the market thinks about the decision to invade Crimea. Its answer was unambiguous: it thinks it is a disaster.

...

The invasion of Crimea is vaguely reminiscent of the Soviet invasions of Hungary and Czechoslovakia (though thankfully a lot less violent), and the Kremlin seems to have weighed the costs and benefits in a similar way. The problem is that the Russian Federation is not the Soviet Union: it’s not an autarkic island that has been deliberately isolated from world markets, it’s a more-or-less integrated part of the global economy. And such an interconnected system makes the economic costs of political decisions far more apparent than did the creaking and byzantine system of state socialism.

...

The longer the intervention in Crimea drags on the more damage it will cause to Russia’s economy. Putin and the Kremlin can think that there won’t be serious economic consequences for their actions, but reality will show them otherwise.

http://www.forbes.com/sites/markadomanis/2014/03/03/the-invasion-of-crimea-is-crushing-russias-stock-and-currency-markets/

[Darnell 8,478]

Time for a new Puzzy Riot Show !

[luckytxn 2,264]

Their economy will recover as EU dollars continue to flow to them from the much needed commodities they provide.

[GandD 5,966]

Their economy will recover as EU dollars continue to flow to them from the much needed commodities they provide.

Their economy had already slide 50% in its growth rate over the last year. What makes you think its going to magically come back?

[mota bhai 2,675]

Their economy had already slide 50% in its growth rate over the last year. What makes you think its going to magically come back?

Forgive him, he has a teeny tiny mancrush on Putin's mantitties. He isn't seeing straight right now.

[Karee 4,190]

1.5% increase in interest rates? Yikes. Doesn't seem like that small piece of property is worth all that.

[luckytxn 2,264]

Never said it would but they have a lot of fuel and other commodities that the EU needs for their economy to be strong. Russia was due for a correction anyway. If they want to really hurt Russia then they need a total sanctions. EU can replace some of it but not all and that would throw their economy back.

Their economy had already slide 50% in its growth rate over the last year. What makes you think its going to magically come back?