US equity futures and stocks sink; Brent soars to US$100 on Russia assault

Russian forces assaulted cities across Ukraine after Putin ordered an operation aimed at demilitarizing the country, prompting Ukraine’s foreign minister to warn of a “full-scale invasion.” Ukraine imposed martial law.

Putin said Russia doesn’t plan to “occupy” its neighbour, but that Russia must “defend itself from those who took Ukraine hostage” -- the US and its allies who had crossed Russia’s “red line” with expansion of the NATO alliance.

Crude surged on possible risks to Russian energy exports, with Brent scaling US$100 ($134.50) a barrel. The flight to safer investments saw the US 10-year Treasury yield fall below 1.90%. Gold hit the highest since early 2021. The dollar and yen jumped, while the euro and commodity-linked currencies retreated.

Western powers are set to step up sanctions to penalize Russian aggression. President Joe Biden announced he would impose “further consequences” on Russia and that he would be speaking with other G-7 leaders.

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The cost of everything from oil to grains to metals has jumped on worries that commodity flows will be disrupted by the Ukraine crisis. That heralds fresh challenges for a global recovery that was already struggling with elevated price pressures and tightening monetary policy.

“Basically, there’s no scenario priced into the markets because it’s impossible to discount fully,” said Kyle Rodda, analyst at IG Markets Ltd. “This is always the worst set of circumstances. Bad news is one thing. Bad news with practically unknown outcomes is another.”

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In cryptocurrencies, Bitcoin slid to around US$35,000 amid risk aversion. The second-largest token Ether also suffered heavy losses.

Markets pared back bets on the number of rate increases by the Fed in 2022, with about six 25-basis-point hikes expected. Investors remain worried that Fed tightening could choke the expansion in the world’s largest economy.

The escalation by Russia “will spur further risk-off moves into safe-haven assets, considering that the situation will remain volatile with retaliation measures coming from Western powers,” said Jun Rong Yeap, a strategist at IG Asia Pte, adding “upside risks to inflation just got elevated.”

Here are some events to watch this week:

• Bank of Korea policy decision Thursday
• EIA crude oil inventory report Thursday
• Fed officials Loretta Mester and Raphael Bostic speak Thursday
• US new home sales, GDP, initial jobless claims Thursday
• US consumer income, US durable goods, PCE deflator, University of Michigan consumer sentiment Friday

Some of the main moves in markets:

Stocks

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• S&P 500 futures fell 2% as of 1.48 pm in Tokyo. The S&P 500 fell 1.8%
• Nasdaq 100 futures slid 2.4%. The Nasdaq 100 fell 2.6%
• Japan’s Topix index fell 1.4%
• Australia’s S&P/ASX 200 index fell 2.9%
• South Korea’s Kospi index shed 2.5%
• Hong Kong’s Hang Seng index fell 3.1%
• China’s Shanghai Composite index lost 0.9%
• Euro Stoxx 50 futures slid 3.5%

Currencies

• The Japanese yen was at 114.66 per dollar, up 0.3%
• The offshore yuan traded at 6.3156 per dollar
• The Bloomberg Dollar Spot Index rose 0.4%
• The euro was at US$1.1230, down 0.7%

Bonds

• The yield on 10-year Treasuries fell 11 basis points to 1.88%
• Australia’s 10-year bond yield was at 2.17%, down 10 basis points

Commodities

• West Texas Intermediate crude rose 4.5% to US$96.24 a barrel
• Gold was at US$1,937.62 an ounce, up 1.5%

Photo: Bloomberg