(Updates with fresh comment, latest comments first) President Vladimir Putin on Wednesday ordered Russia's first mobilisation since World War Two, warning the West that if it continued what he called its "nuclear blackmail", Moscow would respond with the might of all its vast arsenal.
The euro tumbled to a two-week low against the dollar, European stock markets slipped, and investors piled into safe-haven bonds, pushing yields on German and U.S. government debt down.
MARKET REACTION:
STOCKS: Europe's STOXX index briefly fell to its lowest since early July, while the euro stocks volatility index jumped to its highest in more than two weeks.
FOREX: The euro neared two-decade lows, and the dollar index rose to two-decade highs .
EMERGING MARKETS: Hungary's forint, Poland's zloty and the Czech crown weakened around 1% or more against the dollar, and were also softer versus the euro. Russia's rouble slumped to a more than two-month low, heading towards 63 to the dollar.
Emerging market equities are down more than 1% to flirt with a fresh 28-month low. Russian stocks dived 10% in early trading, but later recouped most of those losses.
COMMENTS:
ARNE PETIMEZAS, SENIOR ANALYST, AFS GROUP, NETHERLANDS
"I strongly think of his February speech. That was also ignored at first.
"It is not yet a total war for Russia because there is no full mobilization. But I think Putin is underestimated. He has escalated every time. For him it is life and death. I don't see why his next move will be de-escalation unless he wins. Which of course isn't good either. He keeps going.
"It's a bit difficult to see structurally lower yields. The war has led to higher yields."
SUSANNAH STREETER, SENIOR INVESTMENT AND MARKETS ANALYST, HARGREAVES LANSDOWN, UK
"I think there will be more of a flight to safety. We're likely to see the dollar gain strength again. And I think there will be a rally to funds which perhaps offer security.
"The ECB came out saying that the rate hikes are going to be much stronger, but it didn’t seem to impact the German bond yields which have fallen, which is an indication that investors are fleeing into assets that are considered more safe."
GILES COGHLAN, CHIEF MARKET ANALYST, HYCM, UK
"If the market was taking those threats seriously you would see markets crash, and the fact that we haven't seen any such movement shows that the Russian threat for now is being perceived as sort of sabre rattling, because we've heard these threats before.
"It's not perceived to be likely that Russia is about to start a global nuclear war that's going to end civilization. So, I think that's the right response from the markets now.
"If you look at when the Russian-Ukraine crisis started, there were two currencies that fell sharply, the euro and the pound, and that was due to their geographical proximity.
"The general rule of thumb is, the worst the conflict gets, the more pressure is on the euro and the pound. But conversely, if the conflict is resolved - say, there's some peace agreement or arrangement that brings peace back to the euro region - you'd expect the euro and the pound to gain.
"If it gets really, really bad, I'd expect the dollar to rise."
COLIN ASHER, SENIOR ECONOMIST, MIZUHO CORPORATE BANK
"The initial implications are clear: it’s a potential escalation which is negative for the outlook in the euro zone, and so it's unsurprising that the euro is weaker. It has boosted risk aversion more broadly, so the dollar is stronger.
"It was interesting to me that dollar/yen dipped on the news of the announcement, potentially indicating a return of the yen’s safe-haven credentials which have been absent for much of the year.
"If the conflict in Ukraine escalates then that’s clearly negative for growth, but it's not clearly disinflationary. An escalation may add to supply chain strains."
JUSTIN TANG, HEAD OF ASIAN RESEARCH, UNITED FIRST PARTNERS, SINGAPORE
"A partial mobilization will affect the Russian economy at a time when it can least afford it, with the government being able to call on businesses and civilians to contribute to the war time effort not just financially but also physically.
"Given the passage of time that the 'special operation' has taken, the partial mobilization will not be taken warmly domestically. Any resulting economic downturn will lead to increased resentment. The mobilization is a sign of Putin's desperation and the effectiveness of Ukraine's recent counter offensive.
"While Putin's move is calculated to help him win the war, it may just hasten his demise and spark a virtuous cycle in the global economy by easing food and energy supply issues that will see inflationary pressures subside."
GARY NG, SENIOR ECONOMIST, NATIXIS, HONG KONG
"It creates an extra layer of uncertainty. In a world with high geopolitical tension, the Russia-Ukraine (war) is still on the radar of many investors. Recently, there are really two major things that investors will be looking at – the first is the Fed, the second is Russia-Ukraine."
"If there is greater movement from Russia, then obviously we would probably see higher pressure in the market like in equities, and money will probably flow back again to safe haven (assets) such as the dollar, which will make it even stronger."
DANNI HEWSON, FINANCIAL ANALYST, AJ BELL, LONDON
"The potential (is) that the situation that we have witnessed in Ukraine could get worse and spiral into something that nobody wants to see. The potential that we could get into a situation where the nuclear threat is used as more than just blackmail, as more than just a deterrent is terrifying for investors.
"What it seems to be doing is affecting the dollar. Obviously we have a situation where investors flock to safe havens, and we've also got the anticipation that we are going to see another rate hike from the Federal Reserve today.
"So the dollar was already looking quite punchy and clearly just the proximity to Ukraine of countries in Europe does make people consider what the situation might look like if the war in Ukraine becomes something bigger. So it's a double-edged sword, which is impacting the euro, sterling and the dollar in different ways."
CARLOS CASANOVA, SENIOR ECONOMIST ASIA, UBP, HONG KONG
"Everyone has been extremely nervous about the FOMC meeting this week, and we’ve seen very defensive positions. This announcement by Putin to intensify the escalation in Ukraine definitely doesn’t help.
"It is fueling risk-off sentiment and adding to anxious expectations among global investors. We are seeing a flight to safe havens as a result.
"It’s definitely pushing the dollar up. Most of the impact is in Europe - naturally, given the proximity to the conflict - so a lot of depreciatory pressure (is) on the euro and also the pound, but also in Asia on the yen and the RMB (Chinese yuan), so across the board we are seeing the FX market react to this.
"I would anticipate this is not positive news for other risk classes like equities."
JUSSI HILJANEN, CHIEF RATES STRATEGIST, SEB, FINLAND
"The escalation of the situation in Ukraine is definitely affecting the risk appetite, and bond yields are falling this morning because of this.
"It definitely has an impact on the bond market, especially because we've seen an extended stretch of increasing central bank rate hike expectations. It might be time for a breather and this geopolitical tension adds to the correction potential, at least temporarily, for lower yields."
MICHAEL HEWSON, CHIEF MARKETS STRATEGIST, CMC MARKETS
"It’s the fact that he’s decided to dust off the nuclear card that obviously hasn’t gone down well, and the euro has really been feeling the effects of that as well. I think there is a perception that he’s really upped the ante, and how does the West respond to it?
"I think he’s realised he’s in trouble and he’s doing the only thing he knows how to do, and that is up the ante and find out if the appetite is there amongst NATO leaders and EU leaders to call him and, to be honest, with the stakes being as high as they are, they’ve got no choice." (Editing by Jan Harvey)
