Wall Street and European stocks fell, oil prices rose, the ruble plunged and US government bonds rallied after new sanctions on Russia reverberated through financial markets.
The US S&P 500 stock index was down 1% mid-afternoon in New York, while the tech-focused Nasdaq Composite was down 0.5%.
In Europe, the region’s Stoxx 600 stock index closed 0.1% lower. The Stoxx banks’ sub-index falls 5.7% as traders react to uncertainty over Western allies locking down some Russian lenders of the Swift payment system. Germany’s Xetra Dax lost 0.7%.
The moves come after Russian President Vladimir Putin put his country’s nuclear forces on high alert and Western powers impose sanctions into Russia’s central bank in response to the invasion of Ukraine.
Global stocks rallied on Friday as traders reacted to sanctions against Russia that do not target the country’s energy exports. But after financial sanctions against Russia intensified over the weekend, fund managers reduced their portfolio risk, closing strong bets on the global economy and policy. central bank futures while purchasing low-risk, easily-traded assets.
“Investors are reducing their active bets,” said Michael Metcalfe, head of macro strategy at State Street. “Now is the time to take inventory, reduce positions and try to assess all the possible outcomes” from the geopolitical situation, he added.
Traders are closely watching for any signs of tension in the dollar funding markets, as banks and traders seek sanctions to spill over into global funding markets. . Despite the swings in currency swaps and other markets, investors and strategists say there are no signs of serious funding stress yet.
Brent crude, the international oil benchmark, rose 3.1% to $100.99 a barrel. Futures linked to TTF, the wholesale price of European natural gas, rose 11% to €103/megawatt hour.
The yield on the two-year U.S. Treasury note fell 0.13 percentage points to 1.44 percent, reflecting a substantial increase in the price of the highly liquid debt instrument. Benchmark 10-year Treasuries also recovered, with yields falling 0.12 percentage points to 1.84%, despite expectations the Federal Reserve would begin raising interest rates from next month to counter the inflation increased.
“It was a flight to safety,” said Tatjana Greil Castro, co-head of public markets at credit investor Muzinich & Co.
“It is a turning point for liquid assets and a bit of higher interest rate valuations, though the Fed will keep some determination,” she added.
Money markets earlier this month had expected the Fed to raise interest rates to nearly 1.8% by year-end. By Monday morning on Wall Street, bets had fallen back to just under 1.5%.
Ruble up to 29% off near 118 against the US dollar on Monday morning, then trimmed some of its decline. Russia’s central bank more than doubled interest rates to 20% on Monday and banned foreign sales of local securities in an effort to stem the fallout from sanctions.
The New York Stock Exchange and Nasdaq also halted trading in Russian securities listed on the two exchanges, with the NYSE citing “regulatory concerns”. The list of stocks stopped trading in New York includes Russian internet company Yandex and gaming company Nexters.
Elsewhere, BP shares fell 4% after the British group said over the weekend it would divestments its nearly 20% stake in Russian state oil supplier Rosneft.
In Asia, Hong Kong’s benchmark Hang Seng index fell 1.6% to its lowest level in nearly a year before paring losses to 0.2%.
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