(Bloomberg) — U.S. equity futures fell Monday, while bonds and commodities including oil rose, amid heightened market uncertainty after Western nations unveiled harsher sanctions on Russia for the invasion of Ukraine.
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S&P 500 contracts and those for the technology-heavy Nasdaq 100 were down some 2% but off session lows. European futures declined about 3%. Oil and palladium jumped, with Brent crude again vaulting above $100 a barrel.
Rallies in a dollar gauge, gold and Treasuries underlined the demand for havens. The euro fell on worries about risks for Europe’s economy, which relies on Russian energy. An Asia-Pacific equity index slipped as Hong Kong struggled. Bitcoin pared losses to climb past $38,000.
The stricter Western penalties further split commodity-rich Russia from global finance by seeking to prevent its central bank from using foreign reserves to blunt sanctions. They also exclude some Russian lenders from the SWIFT messaging system that underpins trillions of dollars worth of transactions.
Doubts are now growing about the Bank of Russia’s ability to backstop Russia’s financial system and the ruble. The SWIFT exclusion may leave holes in international banking that require monetary authorities to supply the market with dollars, according to Credit Suisse Group AG strategist Zoltan Pozsar.
An escalating conflict and more severe Western sanctions are roiling markets. The hostilities threaten to stoke inflation by imperiling flows of key resources such as wheat, natural gas, oil and metals, exacerbating the pandemic-era price pressures that were already weighing on global growth.
A key question is how all this may affect the Federal Reserve’s plan for a series of interest-rate hikes starting March. Ebbing liquidity stirred major market swings even before the Ukraine crisis.
“We’re just a few days into a kind of once-in-a-lifetime reorientation in the global order,” Homin Lee, Asia macro strategist as Lombard Odier, said on Bloomberg Television. “This transition is not going to be a smooth one” and uncertainties will remain very high in the next few weeks, he said.
Ukrainian and Russian officials are due to meet at the Belarus border, hours after President Vladimir Putin put Russia’s nuclear forces on higher alert. Ukraine’s President Volodymyr Zelenskiy voiced skepticism about the talks.
Ruble Fears
In Russia, citizens were lining up at cash machines around the country to withdraw foreign currency, fearful of a ruble collapse. Russian bonds were cut to below investment grade by S&P Global Ratings on Friday.
Meanwhile, BP Plc will exit its shareholding in Russia’s largest oil company Rosneft PJSC, potentially taking a financial hit of up to $25 billion. Norway plans to excise Russian assets from its $1.3 trillion sovereign wealth fund.
The conflict is “likely to boost energy prices significantly, resulting in immediate inflationary effects and a large drag on global growth,” Silvia Dall’Angelo, senior economist at Federated Hermes, wrote in a note. “It’s fair to say that the crisis increases the room for central banks’ policy mistakes.”
What to watch this week:
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President Joe Biden State of the Union address, Tuesday
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Reserve Bank of Australia policy decision, Tuesday
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Fed Chair Jerome Powell testifies to Congress on monetary policy, Wednesday and Thursday
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OPEC+ meeting, Wednesday
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Eurozone CPI, Wednesday
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Bank of Canada rate decision, Wednesday
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ECB publishes the account of its February meeting, Thursday
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U.S. unemployment, nonfarm payrolls, Friday
Some of the main moves in markets:
Stocks
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S&P 500 futures fell 2% as of 10:40 a.m. in Tokyo. The S&P 500 rose 2.2% on Friday
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Nasdaq 100 futures lost 2.2%. The Nasdaq 100 rose 1.5% on Friday
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Japan’s Topix index rose 0.2%
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South Korea’s Kospi index increased 0.2%
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Australia’s S&P/ASX 200 index rose 0.6%
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China’s Shanghai Composite index shed 0.5%
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Hong Kong’s Hang Seng Index declined 1%
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Euro Stoxx 50 futures fell 3%
Currencies
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The Bloomberg Dollar Spot Index rose 0.6%
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The euro was at $1.1162, down 0.9%
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The Japanese yen was at 115.53 per dollar
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The offshore yuan was at 6.3180 per dollar, down 0.1%
Bonds
Commodities
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West Texas Intermediate crude rose 5% to $96.14 a barrel
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Gold rose 1.2% to $1,911.46 an ounce
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