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Wall Street and European stocks dropped, oil prices rose, the rouble plunged and US government bonds rallied after new sanctions imposed on Russia heightened tensions across financial markets.
The benchmark US S&P 500 share index dropped 1 per cent, taking it about 9 per cent lower for the year to date, while the technology-focused Nasdaq Composite fell 0.8 per cent.
The Stoxx Europe 600 share index lost 1.3 per cent, taking it almost 10 per cent below its January peak. The Stoxx banks sub-index fell 7 per cent as traders responded to uncertainty about western allies locking some Russian lenders out of the Swift payments system. Germany’s Xetra Dax lost 2.2 per cent.
The moves came after Russian president Vladimir Putin put his country’s nuclear forces on high alert and western powers imposed sanctions on Russia’s central bank in response to the invasion of Ukraine.
Global equities had rallied on Friday as traders reacted to punitive measures against Russia steering clear of the nation’s energy exports. But after financial sanctions against Russia were ratcheted up over the weekend, fund managers de-risked their portfolios, closing out strong bets on the global economy and future central bank policy while loading up on low-risk and easily tradeable assets.
“Investors are reducing their active bets,” said Michael Metcalfe, head of macro strategy at State Street. “Right now is a time to take stock, reduce positions and try to assess all the possible outcomes that could arise” from the geopolitical situation, he added.
Brent crude, the international oil benchmark, rose 2.9 per cent to $101.1 a barrel. Futures linked to TTF, Europe’s wholesale natural gas price, rose 15 per cent to €106 per megawatt hour.
The yield on the two-year US Treasury note dropped 0.12 percentage points to 1.46 per cent, reflecting a significant rise in the price of the highly liquid debt instrument. The benchmark 10-year Treasury also rallied, with the yield falling 0.1 percentage point to 1.89 per cent, despite expectations the Federal Reserve will begin raising interest rates from next month to battle surging inflation.
“It’s a flight to safety,” said Tatjana Greil Castro, co-head of public markets at credit investor Muzinich & Co.
“It’s a dash for liquid assets and a little bit of pricing out higher interest rates,” she added, “although the Fed will keep some resolve.”
Money markets had earlier this month tipped the Fed to raise rates to almost 1.8 per cent by the end of the year. By Monday morning on Wall Street those bets had dropped back to just under 1.5 per cent.
The rouble dropped as much as 29 per cent to almost 118 against the US dollar on Monday morning, later trimming some of its declines. Russia’s central bank more than doubled interest rates to 20 per cent on Monday and banned foreign selling of local securities in a bid to stem the fallout from sanctions.
Elsewhere, shares in BP dropped 6.3 per cent after the British group said at the weekend it would divest its near 20 per cent stake in Russian state oil provider Rosneft.
In Asia, Hong Kong’s benchmark Hang Seng Index fell as much as 1.6 per cent to its lowest level in almost a year before paring losses to close down 0.2 per cent.
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