Investors were preparing on Saturday for more wild gyrations in asset prices after Western nations announced a harsh set of sanctions to punish Russia for its invasion of Ukraine, including blocking some banks from the SWIFT international payments system.
New measures announced by the United States, Britain, Europe and Canada also include restrictions on the Russian central bank's international reserves. The sanctions will be implemented in the coming days.
Investors had been fearing Russia's getting kicked off SWIFT, the world's main international payments network, as it would disrupt global trade and hurt Western interests as well as hitting Russia.
"It means there is going to be a catastrophe on the Russian currency market on Monday," said former Russian Central Bank deputy chairman Sergei Aleksashenko. "I think they will stop trading and then the exchange rate will be fixed at an artificial level just like in Soviet times."
Michael Farr, chief executive of financial consulting firm Farr, Miller & Washington LLC, said of the impact on global markets, "This could be a surprise that is not taken very well if it means a slowdown in international trade.
The news comes after a week when worries over the intensifying conflict in Ukraine shook markets across the world, with stocks tumbling and oil prices soaring as investors rushed to gold, the dollar and other safe havens.
Many of those safety moves were at least partially unwound on Thursday and Friday, and U.S. stock markets rallied to close up for the week.
The latest measures could send markets on another wild ride, as traders assess the implications for the global economy, including potentially higher commodity prices and inflation. The war between Russia, one of the world''s biggest raw materials exporters, and Ukraine has already helped push up oil prices to their highest level since 2014.
One issue "will be the inflation that gets caused here, and the extent to which it can really slow the European economy. It could create headwinds if it goes on and on and on," Farr said.
The S&P 500 is off 8% for the year-to-date, dragged down by worries over geopolitical strife and a more hawkish Federal Reserve.
"A lot of traders were kind of becoming convinced that the U.S. and Europe were not taking a hard stance, said Edward Moya, senior market analyst at OANDA. This action will be really difficult to digest and it will really pick a nerve for a lot of investors. … A lot of the rebound we saw in the latter half of last week will be tested.
Some investors, however, said the markets could put a positive spin on the fresh measures as Western troops had not joined the war.
It's the closest thing to a declaration of war from a financial perspective," said Ross Delston, a U.S. lawyer and former banking regulator. "It's going to result in Russia being viewed as radioactive by U.S. and EU banks, which in turn would be a major barrier to trade with Russia.