MILAN (Reuters) — Stock markets around the world plunged on Monday as fighting in Ukraine raged with no sign of a ceasefire even as negotiations continued, while Brent crude prices soared above $110 a barrel as supplies remained tight.
Turkey’s foreign minister said on Sunday that Russia and Ukraine were close to agreeing on “critical” issues and that he hoped for a ceasefire if the two sides did not reconsider. progress made so far.
Most equity markets rallied last week ahead of a potential peace deal on Ukraine, but real progress may be needed to warrant further gains.
On Monday, Ukraine defied a Russian ultimatum asking its forces to lay down their arms before dawn in Mariupol, as the European Union prepared to consider a possible energy embargo against Russia.
President Joe Biden will meet with NATO allies on Thursday and visit Poland on Friday.
“The next few days will be a litmus test of whether last week’s risky rally was overdone. Hopes for a peaceful resolution in Ukraine have rested more on headlines than on evidence,” said Francesco Pesole and ING’s Chris Turner.
“If a ceasefire is not reached in the coming days, markets may find it difficult to maintain their optimistic approach to the conflict,” they added in a note.
The MSCI World Equity Index was down 0.1% at 12:42 GMT. European equities were choppy with the pan-regional benchmark STOXX 600 index last up 0.1%.
Futures on the S&P 500 and Nasdaq fell 0.1% and 0.3% respectively, while Boeing shares fell 8% in premarket trading in the United States after the plane crash. a 737 plane in China.
In Asia, where Japanese markets were closed for a public holiday, MSCI’s broadest index of Asia-Pacific stocks outside Japan fell 0.8% as investors await further details on a possible revival of Beijing.
BofA’s global fund manager survey last week had a bearish bias with the highest levels of cash since April 2020 and the weakest global growth expectations since the 2008 financial crisis. Commodities were the most crowded exchanges and vulnerable to a pullback.
The war in Ukraine, soaring commodity prices, supply chain issues and policy tightening have all made investors less optimistic about the prospects for global earnings growth.
“The range of outcomes is now unusually wide, so at the margin you need to limit the level of risk you take,” said Keith Lerner, co-chief investment officer of Truist.
“Over the past few years, we’ve had huge upside revisions (to earnings), but this year there’s less room for upside earnings surprises. We still believe companies will beat estimates. , but to a lesser extent,” he added.
Investors were also waiting to see if Russia would face more interest repayments this week. It has to pay $615 million in coupons this month while on April 4, a $2 billion bond matures.
Russian OFZ bond exchanges returned to Moscow in a volatile fashion on Monday as the country sought to gradually resume operations in its financial markets. Trading in stocks, suspended since Western sanctions rocked markets late last month, remained closed.
Bond investors braced for more hawkish language from the U.S. Federal Reserve, with Chairman Jerome Powell speaking on Monday and other Fed members throughout the week.
Policymakers announced a series of upcoming rate hikes to bring the funds rate between 1.75% and 3.0% by the end of the year. The market is implying a 50-50 chance of a half point rise in May and an even bigger chance by June.
European Central Bank President Christine Lagarde said on Monday that the ECB and the Fed would become out of sync for the foreseeable future as the war in Ukraine has very different effects on their economies.
Germany’s 10-year government bond yield hit a new high since November 2018 at 0.440%.
Bond investors seem aware of the risks to growth given the marked flattening of the US Treasury yield curve in recent weeks. The spread between two- and 10-year yields narrowed on Monday to 11.37 basis points, the smallest since the pandemic began in March 2020.
Atlanta Federal Reserve Chairman Raphael Bostic said Monday he had forecast a total of eight interest rate hikes for this year and next, fewer than most of his colleagues as he s worried about the effects of the Russian invasion of Ukraine on the American economy.
Rising Treasury yields helped push the US dollar higher against the yen, with the Bank of Japan remaining determined to keep yields close to zero. The dollar remained close to its highest since early 2016 and was just above parity that day at 119.22 yen, after climbing 1.6% last week.
Elsewhere, the euro fell 0.1% to $1.1035, after rebounding 1.3% last week. The dollar index stabilized at 98.34, after its recent high reached earlier in March at 99.415.
Joseph Capurso, head of international economics at the CBA, noted that flash manufacturing or PMI surveys in Europe would be a headwind for the euro this week.
“Europe is the most exposed to falling supply and rising prices of gas and agricultural imports from Russia and Ukraine,” he said. “A drop in the Eurozone PMI into contractionary territory could bring EUR/USD closer to its war low of $1.0806.”
Elsewhere, the Egyptian pound depreciated nearly 14% after weeks of pressure as foreign investors withdrew billions of dollars from Egyptian Treasury markets.
In commodity markets, gold failed to take advantage of safe-haven flows or inflationary concerns, losing more than 3% in the past week. It was last up 0.2% at $1,924 an ounce.
Oil prices also lost ground last week, but rose on Monday as it was not easy to replace Russian barrels in a tight market.
Brent rose 4.2% to $112.51, while U.S. crude rose 4% to $108.9 a barrel as European Union countries considered joining the United States in a Russian oil embargo, while a weekend attack on Saudi oil facilities has caused concern.