ASX futures were up 29 points or 0.4 per cent at 7052 at 8.00 am AEST on Tuesday, pointing to a robust start to trading.
The S&P 500 slipped 0.24 percent, and the Dow Jones Industrial Average was off about 179 points, or 0.5 percent. Still, the tech-heavy Nasdaq Composite Index wrapped up the day showing some strength, up 0.4%.
Russia’s central bank raised interest rates overnight to 20% from 9.5% in an effort to stabilize the rouble after it plunged as much as 29% following a fresh wave of sanctions targeting the country’s reserves. Elsewhere, Shell followed BP in saying it would end its relationship with Russia’s oil and gas industry.
Amid the market chaos, investors fled to safer assets, driving down the yield on the 10-year Treasury note to 1.824 percent, from 1.984 percent Friday as bond prices climbed. Gold prices edged higher.
The S&P/ASX 200 ended up 0.7% at 7049.1 locally on Monday, rebounding from an early wobble to claw back some of last week’s large falls. The benchmark climbed 0.6% at opening and then immediately fell into the red as anxieties of Russian invasion of Ukraine continued to rattle investors.
But the rally was reinforcing itself, pulling back some of the 3.1% shed through last week as commodity stocks made strong gains.
Gold miners gained from the risk-off mood but Rio Tinto, BHP and BlueScope added 3.2%-6.25%. Fortescue, in the ex-dividend list, fell 2.4%.
Energy explorers Beach, Santos and Woodside all rose 1.3% to 1.5%.
Insurers QBE, Suncorp and IAG lost between 2.5% and 4.0% as floods hit eastern Australia.
Stock markets were mixed across Asia. In Asia, China’s Shanghai Composite gained 0.3% and the Hang Seng lost 0.2%, while Japan’s Nikkei 225 gained 0.2%.
In commodities, gold futures rose 1.3% to $US 1911.78; Brent crude gained 3.1% to $US 100.99; Iron ore rose 4.2% to US$139.10.
Bond markets returned to a risk off mood with the Australian 10-year bond yield at 2.13%.
At 8.00am AEST, having dropped from the previous close of 72.29. The WSJ Dollar Index, which measures the value of the US dollar against 16 other currencies, was up slightly at 90.03.
Asia
Over in Asia, Chinese stocks ended up, led by coal producers and miners. Policies by the government to stabilize growth in China are likely the more decisive factor for the domestic market, while any external volatility should have a relatively muted influence, according to China International Capital Corp. Yankuang Energy climbed 3.2%, China Shenhua gained 2.7%, while Zijin Mining and Aluminum Corp. of China were up 2.5% and 2.4%, respectively.
Among the notable decliners, China Tourism Group Duty Free fell 3.6% and Seazen Holdings slipped 3.0%, following weaknesses in Hong Kong-listed Chinese property shares. The Shanghai Composite Index rose 0.3%, the Shenzhen Composite Index advanced 0.3% and the ChiNext Price Index grew 0.9%.
Hong Kong stocks were also lower, with declines from property-related companies, but the benchmark Hang Seng Index finished down just 0.2% at 22713.02. The sector is weighed down by persistent liquidity fears, with investors worried about maturing debts, Bocom International analyst Philip Tse said. Country Garden Holdings, Country Garden Services and Hang Lung Properties declined 2.9 percent, 2.5 percent and 2.2 percent, respectively. Sunac China also fell, by 16%, and Zhenro Properties lost 5.6%. Concerns about Russia’s invasion of Ukraine are also adding to sentiment headwinds and weighing on Asian equities.
Japanese stocks finished higher, led by advances in shipping and metal stocks despite continued uncertainty surrounding the war in Ukraine. Top shipper Nippon Yusen rose 4.6% and Sumitomo Metal Mining advanced 4.2%. Shares of several companies that have significant business exposure in Russia have also declined. Mitsui & Co. dropped 4.3% and Japan Tobacco retreated 3.6%. The Nikkei Stock Average gained 0.2%. Investors are looking to headlines in Ukraine.
Europe
European stocks were lower but recouped some of their steepest earlier losses as markets regained their composure after Russia invaded Ukraine. The pan-European Stoxx 600 fell 0.1%.
As ceasefire negotiations between Russia and Ukraine remain frustratingly vague and no closer to a tangible agreement, the initial shock of conflict is behind us, and the mood is less febrile than last week, says IG.
“It seems that a big escalation in the conflict would be needed to bring a further leg down,” IG analyst Chris Beauchamp says.
Banks in Europe fell, with a Euro Stoxx banking subindex off about 5.7%. Shares of BNP Paribas tumbled 7.5% and Société Générale declined by about 10%.
“With Swift there will be difficulties with processing payments. That’s where we create credit risk, not only for European banks that have affiliates in Russia but also more widely for those,” with clients in Russia,” said Sebastien Galy, a macro strategist at Nordea Asset Management.
In London, the FTSE 100 fell 0.3 percent as the war in Ukraine continued to roil markets and Russian and Ukrainian officials started discussing a possible end to hostilities.
UK banks were among the worst performers as Russia has been hit by the imposition of western sanctions in relation to Ukraine. HSBC shares closed 4.4% lower in London, with Barclays down 3.2% and NatWest 2.6% lower.
Defense shares surged on Germany's commitment to raise its defense spending above 2% of GDP, with Chemring up 13%, Qinetiq up 11% and BAE Systems up 10%.
North America
US stocks and bond yields dropped and Russian authorities fought to maintain control over domestic markets as investors raced to catch up with geopolitical changes including new sanctions on Russia.
The S&P 500 fell 0.24%, and the Dow Jones Industrial Average dropped about 179 points, or 0.5%. The tech-heavy Nasdaq Composite Index finished the day on a stronger note, with a 0.4 percent gain.
Investors flocked to safer assets, driving the yield on the 10-year Treasury note down to 1.836%, from 1.984% Friday as the price of bonds rose. Gold prices edged higher.
Monday’s trading extends a turbulent run for markets since Moscow’s invasion. Futures for stocks tumbled more than 2 percent Sunday evening and began the week in the red before recovering some ground, only to trade lower once again.
The S&P 500 and Nasdaq are finishing February with a second straight month of declines. The indexes were heading for their largest two-month percentage drop since March 2020, as of early Monday.
Investors spent much of the month focused on high inflation and the interest rate hikes coming from the Federal Reserve. This sent Treasury yields past 2% for the first time since mid-2019 and sparked a rush into bearish bets on stocks. Then in late February, political worries rose to the top as Russia invaded Ukraine, and global markets dived.
Markets in Russia have been crushed since the invasion. Investors sold off Russian bonds and the ruble fell to a record low, trading at 119 rubles to $1 in the European morning before rebounding to about 97 rubles to $1. Price updates from market-data services were sparse Monday, indicating few trades were occurring.
An exchange-traded fund that tracks Russian companies, the VanEck Russia ETF, was down about 27 percent. Russia’s RTS index has lost about a third of its value in February, its worst month since October 2008.
Russia’s central bank chose an emergency interest-rate increase to stop a plunge in the ruble, more than doubling its key rate to 20%, hours after introducing other limits on markets. It also temporarily banned brokers from trading in sales of securities by nonresidents and kept the Moscow Stock Exchange closed Monday. It was closed Tuesday as well.
“There’s very little liquidity and as a result you’re getting this sort of gapping in the price and you’re not really getting any true reflection of where the ruble would be,” said Jane Foley, head of foreign-exchange strategy at Rabobank.
And while the past week has been characterized by big swings, the US markets have been relatively insulated from the turmoil spreading through Russian markets.
In the last few sessions, the major indexes staged a rally, underscoring how much importance many investors have placed on the Federal Reserve’s upcoming move in months ahead. Investors have quickly adjusted bets on the outlook for Europe and how it will influence the central bank’s plans to raise interest rates, with some predicting a smaller increase in March. That has provided some support to stocks at times after that invasion.
“That will give the Fed a little more room to be patient,” said David Sadkin, a partner at Bel Air Investment Advisors.
Ukrainian and Russian officials met in Belarus on Monday for talks on a potential cease-fire, but fighting continued in Ukraine. Russia was bolstering its troops in Ukraine, while Ukraine was mobilizing fresh forces and deploying new weapons systems provided by the West.
Some analysts argue that geopolitical crises usually don’t have lasting effects on US stocks, and that they expected the recent volatility to be short-lived. Stocks then tended to fall anywhere between 6% to 8% following a geopolitical level event before they recoup those losses in another three weeks, according to Deutsche Bank strategy team in a note to clients.
And revenues from Russia and Ukraine account for just 1% at S&P 500 companies, FactSet says.
“We have not made a determination to this point about whether or not we are going to be making any changes based on what is happening in Ukraine,” said Mark Stoeckle, chief executive officer of Adams Funds.
Major indexes swung in and out of green in intraday trading on the final day of the month, briefly pushing higher before rolling back over. Some investors have taken the opportunities to buy stocks on intraday volatility.
“This doesn’t have much effect on our outlook for the US markets,” said Mike Bailey, director of research at FBB Capital Partners, of the conflict. Mr. Bailey said his firm had recently snapped up shares of companies including Nvidia, which had been beaten up this year.
Yet firms at home and abroad saw colossal swings. Defense stocks rose, with US-based Northrop Grumman gaining 5.4%, one of the top performers in the S&P 500.
Shares of Russian companies listed in London plunged, with Sberbank, the country’s largest lender, down 74%.
Oil prices bounced, with most active futures for Brent crude, the global oil benchmark, climbing 4.6 percent to $98.46 a barrel. Brent crude for April delivery recently rose to $100.45. Brent prices exploded last week to nearly $100 a barrel for the first time since 2014 as investors tried to figure out how the invasion would affect the flow of resources in the region.
Over the weekend, the US as well as the European Union, Canada and the UK said they planned to exclude some Russian banks from the Swift network, a worldwide payment system that links banks around the world and allows for cross-border financial transfers. The United States said it would impose sanctions on Russia’s central bank, a step to prevent the bank from using its more than $600 billion in reserves to support the Russian economy.
Looming over all this, President Vladimir Putin ordered Russia’s nuclear-deterrence forces to readiness. The step would place Russia’s network of nuclear missiles in a state in which it can be used if needed.
Russian sovereign debt was hammered, with the yield on a dollar-denominated note with a five-year maturity soaring to 25%, from 9% Friday.
