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

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LONDON – Earlier this year, markets were complacent as Russia massed troops on the border with Ukraine. Now Vladimir Putin’s signal that he may be ready to use nuclear weapons is again being largely ignored.

World stocks endured an early hit 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.

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It was Russia’s first such mobilization since World War II and marked a major escalation of the war, which is now in its seventh month.

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And while safe-haven assets like the dollar, which hit two-decade highs against other major currencies, and government bonds in Germany and the United States rallied, equity markets didn’t seem overly concerned.

European stocks, paring earlier declines, were mostly higher, while major Wall Street indices – already preparing 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, market participants misinterpreted this as a bluff to increase Putin’s bargaining power, but then Putin surpassed expectations by seeking a full-scale invasion of Ukraine,” said Tina Fordham, an independent geopolitical strategist and founder of Fordham Global Foresight.

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“The most significant aspect of what markets aren’t pricing in right now is the potential for Russia to use an unconventional weapon called ‘the wind is blowing.’

Fordham said that while Putin would likely stall on the cusp of a full-blown unconventional attack, creating maximum instability is very much in his “playbook.”

The MSCI World Stock Index is down 21% this year and the Europe STOXX 600 Index is down 16% – both facing their worst year since 2008, when the global financial crisis unfolded.

Russia’s invasion of Ukraine, initially perceived as a special case, has dealt an additional blow to world markets, which are still bracing for decades of high inflation and soaring borrowing costs from the likes of the Federal Reserve and European Central Bank shifted .

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Europe in particular has suffered as Russia cut gas supplies, sending energy prices higher, putting pressure on consumers and businesses, increasing the risk of a recession.

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

Chris Weafer, chief executive of Macro-Advisory, a consultancy that advises companies on doing business in Russia, said Moscow is preparing for a long conflict, including continued energy cuts, and can afford the confrontation better than Europe.

“There was a feeling in Europe that Russia was looking for a compromise. Today’s announcement makes it clear that’s wrong,” he said. “Russia is digging in for the long term. They are ready to see it through.”

Arne Petimezas, senior analyst at AFS Group in the Netherlands, said Putin is underestimated.

“It escalated every time. For him it is a matter of life and death. I don’t understand why his next move will be de-escalation if he doesn’t win,” Petimezas said.

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