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Stocks Erase Loss as Ukraine Scenarios Digested: Markets Wrap

(Bloomberg) — Stocks erased losses as investors bet that markets can recover from the latest imbroglio between the West and Russia over Ukraine, and a flight to havens eased.

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The Stoxx 600 Index fluctuated after falling as much as 2% earlier. Contracts on the S&P 500 steadied while those on the Nasdaq 100 pointed to a decline on Wall Street when trading resumes after a holiday. Benchmark Treasury yields pared their decline to trade at 1.92% and gold slipped.

Russian President Vladimir Putin recognized two self-proclaimed separatist republics in eastern Ukraine and ordered the Defense Ministry to send what he called “peacekeeping forces” to the breakaway regions.

Western leaders condemned the latest moves and the U.S. prepared to announce new sanctions against Russia. The U.S. has warned of a possible Russian invasion of Ukraine, a claim the Kremlin has repeatedly rejected.

The threat of new sanctions and disrupted supply kept energy prices elevated, with natural gas prices soaring more than 13%. The ruble climbed after dropping the most since March 2020 the previous day.

Sentiment is turning more positive as traders wager that the unfolding scenario has already been priced into stocks. If the situation de-escalates, a quick 5% rally in U.S. stock markets is possible, according to Morgan Stanley strategists.

“Any positive news could reverse the bearish action and lead to sudden jumps in risk asset prices,” Ipek Ozkardeskaya, senior analyst at Swissquote, wrote in a note.

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.

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.

“The stock market is right to be concerned about current tensions between Russia and Ukraine,” Lori Calvasina, head of U.S. 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.

Here are some events to watch this week:

  • New Zealand rate decision Wednesday

  • BOE Governor Andrew Bailey appears before the Treasury Committee Wednesday

  • Bank of Korea policy decision Thursday

  • EIA crude oil inventory report Thursday

  • Fed officials Loretta Mester and Raphael Bostic speak Thursday

  • U.S. new home sales, GDP, initial jobless claims Thursday

  • U.S. consumer income, U.S. durable goods, PCE deflator, University of Michigan consumer sentiment Friday

Some of the main moves in markets:

Stocks

  • The Stoxx Europe 600 rose 0.2% as of 11:04 a.m. London time

  • Futures on the S&P 500 were little changed

  • Futures on the Nasdaq 100 fell 0.5%

  • Futures on the Dow Jones Industrial Average fell 0.1%

  • The MSCI Asia Pacific Index fell 1.4%

  • The MSCI Emerging Markets Index fell 1.2%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro rose 0.4% to $1.1353

  • The Japanese yen fell 0.2% to 114.96 per dollar

  • The offshore yuan was little changed at 6.3281 per dollar

  • The British pound fell 0.2% to $1.3571

Bonds

  • The yield on 10-year Treasuries was little changed at 1.93%

  • Germany’s 10-year yield advanced one basis point to 0.22%

  • Britain’s 10-year yield advanced one basis point to 1.42%

Commodities

  • Brent crude rose 2.9% to $98.12 a barrel

  • Spot gold fell 0.6% to $1,895.07 an ounce

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