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

LONDON, Sept 21 (Reuters) – Earlier this year, markets were complacent as Russia massed troops on the Ukrainian border. Now, once again, they are shrugging off Vladimir Putin’s signal that he might be ready to use nuclear weapons.

World stocks withstood 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 “nuclear blackmail” from the West over the war there. read more

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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

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 United States rallied, stock markets didn’t seem too shaken.

European stocks pared earlier declines and mostly rose (.STOXX)while Wall Street’s main 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, it was wrongly interpreted by market participants as a ruse to increase Putin’s negotiating clout, but then Putin exceeded expectations by opting for a full invasion of Ukraine,” said Tina Fordham. , independent geopolitical strategist and founder of Fordham Global Foresight.

“The most significant aspect of what the markets are not pricing in right now is the possibility of Russia using an unconventional weapon, that is, a tactical chemical weapon or a nuclear weapon,” he added, noting that Putin had made some threatening comments. in this sense about the “blowing wind”.

Fordham said that while Putin would probably stop short of a full-blown unconventional attack, it was very much in his “playbook” to cause maximum instability.

The costs of war

The costs of war

The MSCI World Stock Index is down 21% this year and the Europe STOXX 600 Index is down 16%; both are poised for their worst year since 2008, when the global financial crisis hit. The Russian invasion of Ukraine, initially perceived as an outlier, dealt a further blow to global markets still adjusting to a decades-long period of high inflation and a sharp rise in Federal Reserve and Bank borrowing costs. Central European. .

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

Germany and Italy’s dependence on Russia has made their stock markets among the world’s worst performers this year. Those close to the fighting, including Poland and Hungary, have also seen their local markets hit. Investors have also dumped bonds from countries with high gas or wheat import costs.

Stock markets are the most affected by the war between Russia and Ukraine

Stock markets are the most affected by the war between Russia and Ukraine

Chris Weafer, chief executive of Macro-Advisory, a consultancy that advises companies on doing business in Russia, said Moscow was bracing for a long conflict, including continued reductions in energy supplies, and that it could face Better confrontation than Europe.

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

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

“It has climbed every time. For him, it is life or death. I don’t see why his next move will be de-escalation unless he wins,” Petimezas said.

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

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