The meltdown in Russian financial markets has reached the terminal phase.

Thus begins a letter by

George Soros

in today's

Financial Times

, and thus begins the day on Wall Street.

Soros' dire predictions and the

news yesterday that Russia had imposed controls on trading the ruble rocked the currency and equity markets this morning. Dollar/yen rocketed to 147.10 on the news and has since slipped to 145.05 -- 1.14 below yesterday's close. Similarly, dollar/mark climbed above 1.80 before dropping to 1.79. Stocks on the

Russian Trading System

were halted after the RTS Index slipped 11%. Calls for calm from Prime Minister

Sergei Kiriyenko

, who told reporters that "there are no grounds for a deterioration in the situation of the markets," have helped quiet things down -- the RTS was lately down 9.74, or 9%, at 98.45 -- but a risk that the

Financial Times

itself pointed to remains. "There is a danger of George Soros' doom-mongering proving self-fulfilling," said the paper in its influential Lex column. "Comments that Russia's perilous financial condition has reached the 'terminal phase' will hardly allay the fears of a default or a money-printing splurge."

As is so often the case, it appears that the devil the market had been worrying about was not the devil that was at its door.

"The market has been so focused on a Chinese devaluation this Russia thing came out of the blue," said Marc Chandler, currency strategist at

Deutsche Bank

and contributor to

. "It's unfortunate. But the market's reaction is not what we would have expected intuitively. Gold at seven-year lows. The dollar soars and then falls hard -- harder than it rallied. It's the kind of market that's safest to stay away from."

Judging how U.S. stocks will react to the news is difficult -- though it looks like they will open down, the

S&P 500

futures have been volatile through the morning. At 9 a.m. EDT, they were off 3.2, 1.2 below fair value, but significantly up from their lows.

The trouble in Russia ensured that July

retail sales

would be a virtual nonevent for the bond market. The overall figure came in at a decline of 0.4%; excluding the

General Motors

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-strike-affected auto sector, sales increased 0.5%. Expectations were for the headline number to come in down 0.8%, with a 0.4% increase ex-autos. The long bond was down 12/32 to 107, lifting the yield to 5.63%.

After eight days of losses, Japanese stocks posted slight gains. The


climbed 3.05 to 15,382.02. With many investors off for Obon week, trading was light.

For the rest of the world's major markets, the screens were red. In Hong Kong, the

Hang Seng

dropped 199.06 to 6,660.42, as word of Russia's currency woes sparked renewed fears of a Hong Kong dollar devaluation.

In Germany, where bank exposures to Russia are high, stocks were taking the brunt of it. The


was off 75.05, or 1.4%, to 5327.31. In Paris the


was off 8.40 at 3927.29, while in London the


was off 60.4, or 1.1%, to 5401.8.

Thursday's Wake-Up Watchlist


Brian Louis
Staff Reporter

British Telecommunications


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