European markets Wednesday showed a subdued reaction to the U.S. and the European Union adopting tougher economic sanctions against Russia, suggesting that investors had largely positioned for the latest measures.

Moscow's Micex and dollar-traded RTS index were both trading more than 1% higher in early European trade, while the ruble recovered from an initial dip to trade as much as 0.3% higher against the U.S. dollar at 35.62.

The U.S. now has sanctioned five out of Russia's six largest state banks, but even though the measures are expected to sharply restrict the ability of state-controlled banks such as Sberbank and VTB Group, to raise capital on European markets, their bonds didn't show dramatic moves.

Sberbank bonds showed a mixed performance on the day, while Russian government bond yields fell marginally, according to Tradeweb data. Russia's dollar bond due September 2023, for example, was yielding 4.95%, about 0.02 percentage point lower than Tuesday's close.

Shares in Sberbank rose 1.5% in early trade, while shares in VTB, which relies heavily on foreign-debt financing, lost 1%.

Barclays economists wrote in a note to clients that the sanctions by both the EU and the U.S. appear to have been "widely anticipated by markets."

They do highlight, however, that market issuance of Russia banks and companies--having been light since around the end of January--has ground to a complete standstill more recently. The latest sanctions news, they say "can only add more pressure to an already challenging operating and financing environment."

The cost of ensuring Russia's government debt against default fell marginally Wednesday. It now costs an average of $227,000 a year to insure $10 million of Russian debt for five years, roughly $4000 less than on Tuesday, according to Markit.

Some of the U.S. sanctions are designed to penalize Russia's energy sector by restricting the export of technology that could be used to expand Russia's deep-water, Arctic offshore or shale oil production. But administration officials said the restrictions were designed to avoid affecting current energy production capabilities.

Shares in energy giant OAO Rosneft were also trading higher in early trade and stock in BP PLC, which owns a near 20% stake in the Russian state-controlled oil producer, were down less than 0.2%.

Citigroup analysts point out, however, that the full details of the scope of the sanctions aren't clear yet, particularly with regard to existing projects in the oil and gas services sector.

"Some of the equipment can be sourced from Asian manufacturers, and it is unclear if the EU and U.S. sanctions will picked up by governments in the region or not," the bank wrote.

Derek Halpenny, European head of currency research at Bank of Tokyo-Mitsubishi UFJ Ltd., similarly noted that full details aren't expected until later Wednesday and that the possible severity of them should not be underestimated.

"This latest wave of sanctions certainly appear to be the toughest yet and given the Russian economy was already on the verge of recession, these latest measures will likely tip the economy into a contraction that could turn severe," he said.

Elsewhere, Wednesday is a heavy day for macro economic data releases with German consumer price data and the U.S. scheduled to publish ADP unemployment figures, as well as a reading on gross domestic product for the second quarter.

Later, the Federal Reserve's Federal Open Market Committee is set to announce the results of its latest monetary policy meeting.

Ben Edwards contributed to this article

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