New York: A gauge of global stocks slid while safe-haven government debt prices rose on Friday after hopes diplomacy might resolve the Ukraine crisis faded on news Russian-backed separatists were evacuating residents from breakaway regions in the country’s east.
Sentiment soured as shelling increased in eastern Ukraine and after a rebel leader announced the surprise evacuation, a shock turn in a conflict the West believes Moscow will use to justify an all-out invasion of its neighbor.
The dollar rebounded and the safe-haven Swiss franc rose as a mood that had improved on news late Thursday that US.
Secretary of State Antony Blinken would meet with Russian Foreign Minister Sergei Lavrov next week once again darkened.
The dollar and Swiss franc, recipients of a flight to safety during times of crisis, gained. The dollar index, a measure of the greenback to six major trading currencies, rose 0.267%, while the euro against the franc fell 0.16 per cent.
The ruble weakened 1.24 per cent at 77.38 per dollar as Russian assets have been hammered by fears a military conflict would trigger sweeping new Western sanctions against Moscow.
Investors are waiting for the three-day weekend to be over to assess an equity market already weaker on the outlook that rising interest rates will hurt growth stocks, said Rick Meckler, partner at Cherry Lane Investments.
“Coming into this weekend with geopolitical concerns and what’s been a persistently weak market, a lot of people threw in the towel,” Meckler said.
In Europe, the pan-regional STOXX 600 share index retreated from initial gains to close down 0.81%, with travel and banking shares leading the decline. MSCI’s gauge of stocks across the globe shed 0.48 per cent.
On Wall Street, the Dow Jones Industrial Average fell 0.15 per cent, the S&P 500 lost 0.14 per cent and the Nasdaq Composite dropped 0.45 per cent.
The worse case scenario, after discounting an all-out war, would be Russia occupying most of Ukraine and suffering severe economic consequences, which would slow the global economy, said David Kelly, chief global strategist at JPMorgan Funds.
“You get a spike in inflation but the Federal Reserve will probably see that kind of spike in energy prices associated with more uncertainty as ultimately disinflationary rather than inflationary,” Kelly said.
“As an investor I wouldn’t get out of good long-term investments because of that,” he said.
Sell the rumor, buy the news
As tensions rise history shows investors overestimate the downside impact and underestimate the possibility of a positive resolution, said Thomas Hayes, chairman and managing member of hedge fund Great Hill Capital LLC.
“In the worst-case scenario that Russia does take Ukraine, hypothetically as they took Crimea, a lot of the bad news is priced in and it would be ‘sell the rumor, buy the news’,” he said.
U.S. Treasury and European government debt rose as Ukraine developments dented risk appetite. The yield on 10-year Treasury notes fell 4.4 basis points to 1.930%, while benchmark German 10-year bond yields were set for their biggest weekly fall since November. Bond yields fall when prices rise.
Gold retreated slightly from the key $1,900 level. U.S. gold futures settled down 0.1 per cent at $1,899.80 an ounce.
Crude oil extended losses and was heading for a weekly fall as the prospect of increased Iranian oil exports eclipsed fears of potential supply disruption resulting from the Russia-Ukraine crisis.
U.S. crude futures fell 69 cents to settle at $91.07 a barrel, while Brent, the international benchmark, settled up 57 cents at $93.54 a barrel.
Bitcoin fell below the $40,000 mark, but was last down 1.13 per centat $40,228.49.