© Reuters. A man walks past a board displaying currency exchange rates of the US dollar against the Russian ruble in St. Petersburg, Russia, June 24, 2023. REUTERS/Anton Vaganov
NEW YORK/LONDON (Reuters) – Investors have been watching the fallout from Russia’s aborted rebellion, with some expecting to move to safe havens such as U.S. government bonds and the dollar when markets open later on Sunday.
Heavily armed Russian mercenaries led by Yevgeny Prigozhin, a former ally of President Vladimir Putin and founder of Wagner’s army, advanced most of the way to Moscow after capturing the city of Rostov, but then halted their approach, easing off a major challenge. The mercenaries retreated from Rostov overnight.
Financial markets have been often volatile since Russia’s invasion of Ukraine in February 2022, causing cracks in markets and through global finance as banks and investors scrambled to shed exposure.
After Saturday’s events, some investors said they were focusing on the potential impact of safe-haven assets such as US Treasury bonds and commodity prices, given that Russia is a major supplier of energy and grain.
“We are sure to see what happens in the next day or two, but if the uncertainty around the leadership in Russia persists, investors may flock to safe havens,” said Gennady Goldberg, head of US interest rate strategy at TD Securities in New York.
This action sparked worldwide attention and revived longstanding concerns in Washington about what would happen to Russia’s nuclear stockpile in the event of domestic unrest.
“Markets don’t usually respond well to unfolding and uncertain events,” said Quincy Crosby, chief global strategist at LPL Financial (NASDAQ::), particularly with regard to Putin and Russia.
“If uncertainty escalates, you will see Treasuries get a bid, gold will get an offer, and the Japanese yen tends to gain in such situations,” Crosby said, referring to safe-haven assets that investors buy when risks are high. .
Alistair Winter, global investment strategist at Argyll Europe, said that while de-escalation means markets may not react as strongly now, “Putin has clearly weakened and there will be further developments”.
And he believed that the US dollar finds “some support with the return of the market to speculation on raising and lowering interest rates and recession in various economies.”
Eric Myerson, SEB’s chief emerging markets strategist, said that commodity markets, as the main channel of transmission of Russian political shocks to global markets, will be sensitive to upcoming developments.
He added, “We may see a movement in the assets of Ukraine and emerging market countries that are highly dependent on Russian grain or can be suppliers of fossil fuels.”
Stocks have been on a mostly upward trajectory in recent months, which some have said could make them more vulnerable to a sell-off. Year-to-date, it is up 13%, although it has lost steam in recent days, weighed down by the prospect of higher interest rates.
Federal Reserve Chairman Jerome Powell testified last week that he indicated more interest rate hikes to come.
“Markets are going to kind of treat this as another geopolitical risk,” predicted Rich Steinberg, chief market strategist at Colony Group in Boca Raton, Florida.
Tina Fordham, founder of Fordham Global Foresight, said she expects little immediate impact.
“But there is a greater sensitivity and awareness by market participants that this increase in domestic tension in Russia could translate into an event in the markets – there will be some cautious monitoring,” she added.