Stocks Fall, Oil Fluctuates Amid Ukraine Tension: Markets Wrap

(Bloomberg) — Stocks fell Monday as geopolitical risks over Ukraine rippled through global markets.

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Europe’s Stoxx 600 Index plunged to a three-week low, as Asian gauges and U.S. futures declined. All European sectors were in the red, with travel and banks among the worst performing and shares in European companies with exposure to Russia and eastern Europe under pressure.

Oil fluctuated, while U.S. and European bond yields declined and the dollar ticked up.

Tensions over Russia’s military buildup near Ukraine are entering a potentially decisive week as the U.S. warns an invasion may be imminent and President Vladimir Putin accuses America of failing to meet his demands. Russia has repeatedly denied it plans to invade its neighbor, and a diplomatic push to try to resolve the situation is continuing, with German Chancellor Olaf Scholz traveling to Kyiv, a day before heading to Moscow.

The uncertainty is dealing another blow to markets that are already skittish about inflation and the prospect of aggressive Federal Reserve interest-rate hikes to tame it. A deterioration in Ukraine could stoke concerns about price pressures if supplies of Russian energy and Ukrainian grain are disrupted.

“Global market sentiment has a decidedly fragile feel to it this morning as the Russian roulette situation continues to evolve over Ukraine,” Simon Ballard, chief economist at First Abu Dhabi Bank, wrote in a note to investors. “Combined with already heightened unease over elevated inflation and the spectre of aggressive monetary tightening, we are now we are left on the defensive.”

Oil struggled to hold onto an earlier rally that put $100 a barrel in sight. European natural gas prices rose, with storage facilities running low and concern over any disruption to supply from Russia, the continent’s top source.

Russia is a major producer of commodities, including metals such as aluminum and nickel; it accounts for about 40% of palladium, used in catalytic converters. Russia and Ukraine also account for nearly a third of wheat and barley exports, and wheat continued to advance Monday.

“The impact on inflation will go beyond oil and gas,” said Wai Ho Leong, strategist at Modular Asset Management in Singapore. “For the rest of the world, it is potentially a massive food shock.”

Bear-Market Risk

Among individual stock moves in Europe, Clariant AG tumbled the most in 19 years after the company postponed results amid an accounting investigation. Hungary’s Wizz Air Holdings Plc led a decline in airlines as carriers took further steps to avoid Ukraine.

One question for investors is whether stocks forged lows for the year near the end of January or face more pain on Russia-Ukraine tension.

Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets LLC, said the January lows have a good chance of holding, while Michael Wilson, Morgan Stanley’s chief U.S. equity strategist, said a potential invasion could push economies into recession.

“There’s no past conflict that provides a good template for how low stocks could trade if an invasion occurs,” Calvasina wrote in a note

Here are some key events this week:

German Chancellor Olaf Scholz travels to Ukraine Monday and to Russia on Tuesday for diplomatic talks
European Central Bank President Christine Lagarde participates in parliament debate on ECB annual report, Monday
U.S. PPI, Tuesday
EIA crude oil inventory report, Wednesday
FOMC minutes, Wednesday
China CPI, PPI, Wednesday
G-20 finance ministers, central bank governors meet, Thursday through Feb. 18
Cleveland Fed President Loretta Mester, St. Louis Fed President James Bullard speak, Thursday
U.S. Monetary Policy Forum: speakers including Fed officials Charles Evans, Christopher Waller and Lael Brainard, Friday

For more market analysis, read our MLIV blog.

Here are the main market moves:

Stocks

The Stoxx Europe 600 fell 2.7% as of 9:48 a.m. London time
Futures on the S&P 500 fell 0.9%
Futures on the Nasdaq 100 fell 1.1%
Futures on the Dow Jones Industrial Average fell 0.8%
The MSCI Asia Pacific Index fell 0.6%
The MSCI Emerging Markets Index fell 0.8%

Currencies

The Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.3% to $1.1321
The Japanese yen rose 0.3% to 115.12 per dollar
The offshore yuan was little changed at 6.3617 per dollar
The British pound fell 0.4% to $1.3515

Bonds

The yield on 10-year Treasuries declined three basis points to 1.91%
Germany’s 10-year yield declined nine basis points to 0.20%
Britain’s 10-year yield declined six basis points to 1.48%

Commodities

Brent crude was little changed
Spot gold fell 0.1% to $1,856.51 an ounce