Stocks decline, Treasuries climb on Ukraine tension

Bloomberg

Stocks decline with US futures on Tuesday on intensifying tension between the West and Russia over Ukraine, a standoff that’s causing energy prices to soar and leading investors to seek havens among sovereign bonds.
The Stoxx 600 Index pared a loss of as much as 1.8% at the open to trade 0.7% lower. US contracts pointed to declines on Wall Street when trading resumes after a holiday. Treasuries climbed, taking the US 10-year yield below 1.90%. The dollar was steady and gold wavered.
Oil, nickel and aluminium jumped as traders weighed the risk of supply disruptions from potential Western sanctions. European gas surged over 10%. Russian shares tumbled more than 9%, extending the steepest slump since the annexation of Crimea in March 2014. The ruble weakened beyond 80 per dollar after falling the most since March 2020 the previous day.
Russian President Vladimir Putin recognised two self-proclaimed separatist republics in eastern Ukraine and ordered the Defense Ministry to send what he called “peacekeeping forces” to breakaway regions.
Western leaders condemned the latest moves and the US prepared to announce new sanctions against Russia. The US has warned of a possible Russian invasion of Ukraine, a claim the Kremlin has repeatedly rejected.
The unfolding security crisis in eastern Europe saddles global markets with the one thing they most dislike — a large amount of uncertainty. Geopolitical risks have already led investors to pare back bets on how aggressively the Federal Reserve may tighten monetary policy this year to fight inflation.
“It’s very difficult to assess risk-rewards in the current environment,” said Damien McColough, head of fixed income research at Westpac Banking Corp. “The Putin recognition of the separatists has added a new dimension that gets us even more concerned that an invasion will happen.”
Investors are also continuing to monitor commentary on the U.S. monetary-policy path. Fed Governor Michelle Bowman suggested that a half percentage-point increase in interest rates could be on the table next month if incoming readings on inflation come in too high.
“The stock market is right to be concerned about current tensions between Russia and Ukraine,” Lori Calvasina, head of US equity strategy at RBC Capital Markets LLC, wrote in a note.
That’s because they “run the risk of exacerbating the challenging inflation backdrop that many investors and companies have expected to improve in the back half of 2022 and present a risk to the margin outlook,” she said.
The Stoxx Europe 600 fall 0.7% as of 8:44 am London time and futures on the S&P 500 also drop 1.2%.
While futures on the Nasdaq 100 fall 1.9%, futures on the Dow Jones Industrial Average also drop 1%. The MSCI Asia Pacific Index falls 1.5% and the MSCI Emerging Markets Index also sinks by 1.4%.
The Bloomberg Dollar Spot Index was little changed and the euro was little changed at $1.1320. The Japanese yen falls 0.1% to 114.88 per dollar and the offshore yuan drops 0.1% to 6.3337 per dollar. The British pound falls 0.2% to $1.3574.
The yield on 10-year Treasuries declined four basis points to 1.89% and Germany’s 10-year yield declined two basis points to 0.19%.
Britain’s 10-year yield declined two basis points to 1.39%.
Brent crude rises 3.6% to $98.86 a barrel and spot gold falls 0.1% to $1,904.19 an ounce.