European stock exchanges in red, Ukrainian crisis
Russia-Ukraine war, the conflict continues
There war between Ukraine and Russia has intensified. THE local Russian markets they finally opened this week, with prices reflecting a default in sovereign debt and almost no value in the Russian stocks. Despite two sessions of negotiations, there has been hardly any progress on an agreement on the “cease-fire”, Due to the large gap in the requests of the parties.
Even the agreement on the creation of a humanitarian corridor to allow civilians to flee from Ukraine seems to have failed. We see this development as negative, as an indicator of further development escalation. The two key questions to ask for the future are: the Born will it be involved in the war? There Russia will default on his debt? As for the first question, the Born provided weapons to Ukrainebut refrained from direct intervention.
We expect this to be the line that will remain, even if the risks of an involvement of the Born are increasing, given the growing pressure from the voters. This risk is not currently priced by markets and it would be a very bad event. For what concern Russian debtInstead, in the first place, last week Russia reaffirmed its willingness to continue honoring its own foreign debt declining: Putin he had said he would honor the foreign debtbut a decree over the weekend it stipulated that all dollar payments will instead be made in rubles.
Second, and more importantly, Russia’s ability to pay is rapidly diminishing. In addition to the high cost of the war (estimated at between $ 3 and $ 20 billion per day), the Russia get back access to foreign capital markets in the medium term, making it unnecessary to continue honoring the debt with the risk of running out of foreign reserves (there Russiafollowing the sanctions from Western countriesno longer has access to about the 75% of its foreign reserves). We therefore expect the Russian sovereign debt can go into default.
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