Stocks cut losses, even as the West prepares to punish Russia

U.S. stocks were volatile on Tuesday at the open, as traders on Wall Street reacted to escalating tensions between Russia and Ukraine and its Western allies.

Early on Tuesday, global markets crashed after the Russian President, Vladimir V. Putin, ordered troops to enter two breakaway regions in eastern Ukraine on the night before. But by afternoon in Europe, the stock indexes had reversed their decline.

Oil prices have lost some of their early gains. Stoxx Europe 600 gained 0.4%, pausing three days of losses. Before that, the index had fallen nearly 2%.

The S&P 500 rose 0.2 percent, while the Nasdaq composite fell 0.3 percent. (US markets were closed Monday for Presidents Day.)

In a speech on Monday, Putin said that Ukraine is a “country created by Russia” and that he signed a decree recognizing the independence of the breakaway regions, Donetsk and Luhansk, before sending troops . European and American leaders have said they will impose more sanctions in response.

Britain announced sanctions against five Russian banks and three individuals on Tuesday, saying it was ready to add more if warranted. Prime Minister Boris Johnson told lawmakers in Parliament: “We should train ourselves for a protracted crisis.

Caroline Simmons, UK Investment Director at UBS Global Wealth Management, said that after reacting to initial news of the troop move, traders’ reaction turned more muted, possibly due to reflects that this does not equate to a full-blown invasion.

“I suspect that there is some kind of hope that this move has been made, some sanctions will be imposed, but obviously not the full scale of the sanctions,” she said. It would still try to be more diplomatic, she said, but that full conflict is still viewed “As a tail risk.”

“But if it continues to escalate, then obviously that will be very bad for the market,” she said.

In late afternoon Europe, the MOEX, Russia’s benchmark stock index, was up more than 2%, reversing a drop of more than 9%. On Monday, it fell 10.5%, the worst single-day drop since March 2014, in annexation of Crimea.

Yields on the 10-year US Treasury note rose to 1.95%, reversing earlier declines.

The potential global economic ramifications of the conflict in Ukraine have encouraged traders to seek the safety of Treasuries, which has dragged down benchmark US bond yields. But investors have another concern on their mind: How far and how quickly the Federal Reserve will raise interest rates to tackle inflation.

About a week ago, yields were at their highest since mid-2019 as traders braced for a rate hike. UBS Global Wealth Management predicts six 25 basis point increases this year.

However, the threat of energy supply disruptions has driven oil prices higher. The price of Brent crude for delivery, the European benchmark, rose more than 2% to around $97 a barrel, after touching $100 a barrel earlier.

A war between Ukraine and Russia could disrupt the global supply chain of goods, cause food and energy costs to rise and increases the risk of faster inflation in the long run. Russia is the world’s largest supplier of wheat and an important source of energy for Europe, supplying nearly 40% of the continent’s natural gas and 25% of its oil. A protracted conflict could worsen Europe Energy bills are already high.

Asian stock markets closed lower. The Hang Seng index in Hong Kong fell 2.7%, its worst day since July, and the Nikkei 225 index in Japan dropped 1.7%.

Gregor Hirt of Allianz Global Investors wrote in a note: “Overall, the market reaction has remained disciplined although more volatile is likely to be seen as the political and military situation evolves and is likely to be expected. Climb the ladder”. Stocks cut losses, even as the West prepares to punish Russia

Fry Electronics Team

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