Russia Avoids Historic Sovereign Debt Default, World Stocks Cheer
Global stocks gained on Friday after Russia made coupon payments due on two of its sovereign bonds in dollars this week, even as Western sanctions have pushed Russian financial dealings into the doldrums.
The Russian finance ministry said on Thursday that it had sent $117 million in coupon payments on two dollar-denominated sovereign bonds due this week. Despite Western countries' sanctions on Moscow in response to its invasion of Ukraine on February 24, the most significant attack on a European State since World War Two.
"If you think about where we could have been if Western governments had disallowed the use of frozen funds for coupon payments on Russian sovereign bonds, we would be sitting on a default of a world economy," Jamie Cox, managing partner at Harris Financial Group in Virginia, told Reuters.
"As a result of that, some of the biggest impacts to the global financial system are being put off into the future - that's good," he added.
While there was widespread fear that Russia would default on its debt payment for the first time since its financial crisis in 1998, the coupon payments in the two dollar-denominated sovereign bonds helped investors' sentiment.
Indeed, the MSCI's gauge of world equities, which measures stocks in 50 countries worldwide, rose nearly 1 per cent. European stocks edged up, and the US indices rose, with the Standard and Poor's 500 indexes closing out over 1 per cent higher for the day.
"We're in the middle of a relief rally after such a deep sell-off in tech in advance of the likely path of rates by the Fed. Now that they've removed all the uncertainty about rates, tech stocks can reprice," Mr Cox added.
The US dollar was buoyed by the Federal Reserve's first rate hike since the pandemic. Expectations are firming for an aggressive Fed rate hike path. With most major central banks likely to struggle to match the US central bank's tightening trajectory, it would create clear interest rate differentials and keep the greenback weel bid.
Those expectations for a stronger dollar has taken some shine of gold, with the price of the precious yellow metal falling on Friday and marking the most significant weekly drop in nearly four months.
