NEW YORK/LONDON:World shares slid on Monday as U.S. warnings that Russia could invade Ukraine at any time pushed oil prices to fresh seven-year peaks and sent investors scurrying to buy safe-haven government bonds they have mostly shunned this year.
Europe’s STOXX 600 share index tumbled as much as 3.0% and spot gold headed toward its biggest single-day gain in four months even as Russia suggested it was ready to keep talking to the West to try to defuse the crisis.
The United States is relocating its embassy operations in Ukraine from the capital Kyiv to the western city of Lviv, Secretary of State Antony Blinken said, citing the “dramatic acceleration in the buildup of Russian forces.”
Ukraine’s government bonds slumped 10% to the lowest of the crisis while strength in bullion and the Swiss franc underscored the appeal of safe-havens even as Ukraine hinted at concessions to Russia.
Markets in Europe were antsy. Major regional bourses closed about 2% lower and European natural gas prices for delivery in a month’s time jumped nearly 10% to 81.30 euros per megawatt hour. [.EU]
Wall Street initially was mixed but turned bearish on news of embassy relocation. [.N]
Rising geopolitical tensions come at a time Wall Street is already vulnerable to inflation worries and the likelihood of tighter monetary policy from the Federal Reserve, said George Ball, chairman of wealth manager Sanders Morris Harris.
Stocks face too many worries for any longer-lasting upward move, Ball said, adding that investors should increase cash to 10%-20% of their portfolios.
“Stocks have been premium priced for quite some time and a mixture of rising interest rates, military threats and the highest rate of inflation since 1980 makes a modest baby bear move in stocks likely in the near term,” Ball said in a note.
The Dow Jones Industrial Average fell 0.7%,, the S&P 500 lost 0.58% and the Nasdaq Composite dropped 0.11%.
St. Louis Fed president James Bullard restated his call last week for a full one percentage point of rate hikes by July 1 in comments that helped spark a repricing of Treasuries.
But on Monday Bullard said he would defer to Fed chair Jerome Powell about the timing of upcoming moves.
The yield on 10-year Treasury notes rose 3.8 basis points to 1.989%. Earlier they traded above 2.0% before Ukraine tensions sent prices, which move inversely to yield, higher.
The dollar index hit a two-week high as investors remained anxious over the Ukraine tensions and on Bullard’s comments. It was later rose 0.429%, while the Russian ruble strengthened 0.79% to 76.82 per dollar.
The euro’s retreat pushed the key euro-dollar implied volatility gauges to their highest since November 2020. The euro fell 0.46% to $1.1297.
“If it (the Russian invasion) happens, the question is how does it happen?” said Jim Veneau at AXA investment managers, saying it could be a conventional ‘tanks roll forward’ situation or a more hybrid-style conflict centred on cyber attacks.
The worrying thing learned from the Cold War era, he added, was that “anything involving Russia and NATO, and you’re only a couple of steps from a nuclear (buildup) escalation”.
MSCI’s gauge of stocks across the globe shed 1.10%.
Markets have been in convulsions since an alarmingly high U.S. inflation reading last week sparked speculation the Fed might raise rates by a full 50 basis points in March and even raise rates before next month’s meeting.
But U.S. short-term interest rate futures on Monday reflected a reduced chance of a rate increase before the Fed’s two-day March policy meeting.
The Bank of Japan conducted an unlimited bond-buying offer on Monday to restrain Japanese debt yields.
The oil market cooled briefly on news of Ukraine’s concessions offer, but climbed soon after.
U.S. crude futures settled up $2.36 at $95.46 a barrel, while Brent futures rose $2.04 to settle at $9.48 a barrel.
Fear of a Russia-Ukraine conflict boosted bullion’s safe-haven appeal. U.S. gold futures settled up 1.5% at $1,869.40 an ounce. Spot gold hit its highest level since Nov. 16 earlier in the session at $1,873.91.
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