Stocks fall amid fears of Russian invasion of Ukraine, oil reaches 7-year peak

LONDON (Reuters) – Global stocks slid on Monday as warnings that Russia could invade Ukraine at any time sent oil prices to seven-year highs, battered the euro and sent investors back into safe-haven government bonds. Dumping all year round.

Rising fears sent European stock index STOXX 600 (.stoxx) It fell 2.7% and sent Wall Street futures down about 1% ahead of Russian Foreign Minister Sergey Lavrov’s comments that diplomatic efforts should continue to help regain some lost ground. Read more

Ukraine’s government bonds, understandably, showed the most concern as they fell 10% at one point, although overnight down 2.2% below the Nikkei average in Tokyo. (.N225) The strength of the yen and the Swiss franc in the foreign exchange markets / FRX underlined the global importance of the situation.

German Chancellor Olaf Schulz was the last Western leader to go to Moscow and Kiev for shuttle diplomacy. On Sunday, the United States said Russia could create a sudden pretext for an attack, and reiterated its pledge to defend “every inch” of NATO territory. Read more

A slump in the currency market for the euro left it as low as $1.1345 and pushed measures of the euro’s implied volatility against the dollar to its highest levels since November 2020. The cost of insuring against Ukraine defaulting on other debts has also risen — something that happened after Russia’s 2014 annexation of Crimea. / FRX

“If (the Russian invasion) happens, the question is how does it happen?” It could be a standout for conventional tanks or a more hybrid conflict centered around cyberattacks, said Jim Fino of AXA’s chief investment officer.

He added that the disturbing thing that was learned in the Cold War era is that “anything about Russia and NATO and you are only two steps away from a nuclear escalation.”

MSCI’s broadest global stock index (.MIWD00000PUS) It is already down 0.9%, although the Eastern Bloc conflict wasn’t the only pressure on sentiment.

Markets have been in turmoil since an alarmingly high US inflation reading sparked speculation that the Federal Reserve could raise interest rates by a full 50 basis points in March.

There was even talk of an emergency rise between meetings. This was partly driven by the timing of the Fed’s closed meeting on Monday, although the event appeared to be routine.

The talk was softened when the Fed released an unchanged schedule for bond-buying for the next month, with the central bank saying it would only raise after its buying stopped.

San Francisco Fed President Mary Daly also played down the half-point move in an interview on Sunday, saying that being “surprising and aggressive” about policy could backfire. Read more

Safe bond return in favor

Since then, futures markets have reduced the risk of a half-point rise to about 58%, when they were priced as near certain in one stage last week.

“Broad-based inflation pressures have increased pressures earlier than expected for a simultaneous shift toward restrictive policy around the world,” said JPMorgan’s chief economist, Bruce Kasman.

“But we do not expect that this will translate into an act of aggression in March,” he added. “Partly, this reflects Omicron uncertainty, geopolitical tensions, and purchasing power pressure from high inflation – all of which are weighing on growth in the current quarter.”

Louis Federal Reserve Chairman James Bullard said on Monday that US inflation data justified a tightening of 100 basis points by July, similar to comments he made recently.

All the price talk pushed Treasury yields to the peak last seen in 2019, before geopolitical tensions sent a safe haven rally late Friday. The 10-year bond yield was last at 1.96%, down from 2.06% last week and German bond yields fell by 10 basis points in Europe. to 0.23%

The yield curve in the US has also flattened remarkably with roughly seven to ten-year maturities, as investors bet that the next Fed tightening would slow economic growth.

The Bank of Japan made an unlimited offer to buy bonds on Monday to restrict yields there. Read more

A 0.3% drop in the euro to $1.1317 lifted the dollar index to 96.258 and off last week’s lows of 95.172. The dollar also rose to 77.15 rubles, after jumping 2.9 percent on Friday.

Gold slipped to $1,852 an ounce after rising 1.6% on Friday.

Oil prices rose further to their highest levels in seven years amid fears that an invasion of Ukraine could trigger US and European sanctions and disrupt exports from the major oil producer in an already tight market.

Brent added another $1.02 to record $96.16 a barrel before settling at $94.60, while US crude rose 17 cents to $93.22. European natural gas prices for delivery in a month jumped by almost 10% to €81.30 per megawatt-hour.

Mark Jones reports. Editing by Nick McPhee and Chizu Nomiyama

Our criteria: Thomson Reuters Trust Principles.