Global equities shudder as Russian attack on Ukraine grips investors

Stocks around the world fell on Monday as the prospect of a Russian attack on Ukraine suppressed demand for riskier assets, strengthening the dollar, supporting oil and undermining bitcoin.

The US State Department said on Sunday it was ordering family members of diplomats to leave Ukraine, one of the clearest signs yet that US officials were preparing for aggressive Russian action in the region.

US President Joe Biden has been weighing options for increasing US military assets in the region to counter Russia's troop buildup, with the New York Times reporting that Biden is considering sending 1,000 to 5,000 troops to Eastern Europe.

The Euro STOXX 600 fell 1.3 per cent to its lowest level since December 20, with indices in London, Paris and Frankfurt down 0.8-1.5 per cent.

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Tech stocks suffered losses, falling 2.3 per cent to their lowest level since October after Wall Street was criticised last week over the prospect of interest rate hikes.

Exness Login English analysts point to investor reluctance to re-invest in equities, a rare occurrence in an era of ultra-low interest rates and liquidity squeezed by the central bank after 2008.

" Ukraine is really in the spotlight at the moment," said Michael Hewson, chief market analyst at CMC Markets. "Over the last 12 years the investor mentality has generally been to buy on the downside. For the first time in the last 12 years, I felt that was not the default position."

The broadest MSCI Asia-Pacific equity index outside Japan fell 0.7% and Japan's Nikkei fell 0.1%.

However, Wall Street seems to have recovered somewhat from last week's fall, with S&P 500 futures and Nasdaq futures up around 0.3%.

The MSCI World Stock Index, which tracks stocks in 50 countries, fell 0.3%.

Oil prices rose again, rising for five straight weeks to a seven-year peak amid expectations that demand would remain strong and supply tight.

Bitcoin fell 5% in trading on Monday to $34,551, not far from the six-month low of $34,000 reached on Saturday. The cryptocurrency has lost almost half of its value after hitting a record high of $69,000 in November.

FED NERVES

Nervousness over Wednesday's Fed meeting has exacerbated the situation. The US central bank is expected to confirm that it will soon begin to deplete the huge pool of liquidity that has boosted equities in recent years.

Concerned markets are now assessing even a slim chance that the Fed will raise rates this week, although the vast majority expect the first hike to 0.25% in March and three more to 1.0% by the end of the year.

"Given extremely high inflation, the Fed is steadily abandoning the ultra-soft monetary policy that has been a key pillar of equity prices for more than a decade," said Oliver Allen, market economist at Capital Economics.

The prospect of higher borrowing costs and more attractive bond yields has affected US tech stocks with their high valuations, causing the Nasdaq to fall 12% this year and the S&P 500 to fall almost 8%.

Such was the extent of the losses that Treasuries actually rose late last week on speculation that a bonfire of market wealth might scare the Fed into being less hawkish.

While Treasuries did rebound late last week, the 10-year bond yield is still 22 basis points higher than the previous month at 1.77%, not far from levels last seen in early 2020.

The rise has generally supported the US dollar, which added 0.5% against a basket of currencies last week and was last seen rising 0.1% to 85.647.

"We suspect that the dollar could receive broader support," MUFG analysts wrote. At Wednesday's meeting "the Fed's aggressiveness is likely to continue as the Fed is more concerned about inflation risks and shows determination to reverse monetary policy easing more quickly".

Brent crude rose 83 cents to $88.72 a barrel, while US crude rose 77 cents to $85.91.

Analysts cited fears of supply disruptions due to rising tensions in eastern Europe, while OPEC and its allies continued to struggle to increase output.

 

Read more: Dollar finds its footing; Turkish lira continues to rise amid Covid panic

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