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Harsh sanctions against Russia following its invasion of Ukraine are fueling a moment of deep uncertainty for financial markets. And while the full effects of efforts to punish the world’s 11th biggest economy remain unknown, a crucial moment has arrived.

What’s happening: Russia could start the clock Wednesday on its first international debt default since the Bolshevik revolution. Investors have warned that this outcome — unthinkable just a few months ago — could rattle the financial system in unexpected ways.

“This is clearly an important story to watch,” Deutsche Bank strategist Jim Reid recently told clients.

Moscow needs to hand over $117 million in interest payments on dollar-denominated government bonds on Wednesday. Although Russia has issued bonds that can be repaid in multiple currencies since 2018, these payments must be made in US dollars.

This wouldn’t have been a problem before the war. But unprecedented sanctions from the West have cut off Russia’s access to half of its foreign reserves, or about $315 billion, according to Anton Siluanov, the country’s finance minister.

Siluanov said over the weekend that Russia will repay creditors from “countries that are unfriendly” in rubles. Credit agency Fitch Ratings said Tuesday that if Moscow goes this route, it would trigger a sovereign default.

There are a few ways the situation could play out from here, Timothy Ash, a senior sovereign strategist at BlueBay Asset Management, told me.

  1. Russia meets its obligations in full and in dollars.
  2. Russia could pay up, but may favor locals over foreigners. That would still constitute a default. “You can’t pay some creditors but not others,” Ash said.
  3. Russia could pay in rubles. That would also trigger a default, as Fitch has emphasized.
  4. Russia could do nothing, at least for now. It then enters a 30-day grace period before a default would be declared. Ash says it’s possible Putin’s government goes this route to “make people fret.”

Why does it matter? If the Russian government defaults, it will trigger a scramble to determine which investors loaned Moscow money, and whether their potential losses could have damaging knock-on effects.

Western investors are less exposed to Russia than they used to be. Sanctions following the annexation of Crimea in 2014 already encouraged them to reduce their exposure. International banks are owed about $121 billion by Russian entities, according to the Bank for International Settlements.

JPMorgan estimates that Russia had about $40 billion of foreign currency debt at the end of last year, with about half of that held by foreign investors.

“A default is a disaster for Russia,” Ash said, noting that the international community has little interest in lending a hand, and the country is likely to lose access to foreign financing for some time. “I don’t think it’s a disaster for global markets,” he added.

Kristalina Georgieva, managing director of the International Monetary Fund, also said over the weekend that a financial crisis was unlikely to develop “for now.”

But the saga will take some time to play out, especially as more payments come due. A much larger $2 billion payment scheduled for early April could create even bigger headaches for Moscow.

Stocks rise ahead of expected Fed rate hike

Global stocks jumped on Wednesday as policymakers’ attempts to manage the pandemic and soaring inflation soothed nervous investors.

Two events are helping ease fears. Beijing swooped in to calm plunging Asian markets, saying it would ease its regulatory crackdown on private businesses and support markets and the economy.

In response, Hong Kong’s Hang Seng index soared more than 9%, its biggest one-day gain since 2008. China’s Shanghai Composite leaped 3.5%.

Chinese stocks had suffered huge sell-offs in recent days, as investors worried about the country’s new Covid lockdowns, tough actions from US and Chinese regulators and the potential for backlash over Beijing’s close ties with Moscow.

Wall Street is also gearing up for the Federal Reserve to raise interest rates for the first time since the pandemic arrived. Chair Jerome Powell indicated earlier this month that he supported a normal-sized rate hike, ending speculation that the central bank could opt for a more aggressive approach as it tries to tame inflation.

Investors are hopeful that such a move will help curb rising prices without weighing too much on economic growth.

Watch this space: The market reaction will likely come down to Powell’s press conference. Expect questions about when the Fed expects to start reducing the bonds it holds on its balance sheet. That’s the other big lever it can pull to get inflation under control.

“Market pricing of future action will be influenced by the Fed’s new forecasts and the tone Chair Powell takes,” James Knightley, chief international economist at ING, said in a research note.

AMC just bought a stake in a (literal) gold mine

AMC (AMC) has been taking steps to move beyond its core business of playing movies in theaters. The company has been dabbling in cryptocurrency and plans to sell its own popcorn brand at stores. But its latest announcement is a real plot twist.

On Tuesday, AMC said that it plans to invest about $28 million to buy a 22% stake in Hycroft Mining, a struggling Nevada company that operates a gold and silver mine, my CNN Business colleague Paul R. La Monica reports.

“AMC is playing on offense again with a bold diversification move,” CEO Adam Aron tweeted.

He explained the move as a tie-up between two like-minded businesses, even if they appear to have little in common on paper.

The Hycroft investment “is the result of our having identified a company in an unrelated industry that appears to be just like AMC of a year ago,” Aron said. “It, too, has rock-solid assets, but for a variety of reasons, it has been facing a severe and immediate liquidity issue.”

Remember: AMC went into crisis mode when it had to shut its theaters during the pandemic. But it was handed a lifeline by enthusiastic investors, who rushed to buy meme stocks after coordinating on social media.

Investors applauded the surprising decision. Shares of AMC jumped almost 7% on Tuesday. Hycroft Mining, a penny stock, leaped 9%.

Up next

US retail sales for February arrive at 8:30 a.m. ET. The Federal Reserve publishes its latest policy decision at 2 p.m. ET.

Coming tomorrow: US housing starts and industrial production data.