Stocks stumble as Ukraine tensions increase, investors seek safety in bonds

Stocks fell on Thursday as investors took fright after Russia reports of firing in Ukraine, while traders sought safety in government bonds and oil clawed back some of its heavy early losses.

By Tommy Wilkes

LONDON (Reuters) - Stocks fell on Thursday as investors took fright after Russian-backed separatists accused Ukraine government forces of opening fire, while traders sought safety in government bonds and oil clawed back some of its heavy early losses.

The Russian-backed separatists in eastern Ukraine accused government forces of opening fire on their territory four times in the past 24 hours and said they were trying to establish if anyone had been hurt or killed.

The incidents come as Russia has massed more than 100,000 troops close to Ukraine's borders, raising fears of an invasion.

Losses on stock markets were widespread, though not as big as in recent sessions.

In Europe, the Euro STOXX slipped 0.2% while Britain's FTSE 100 dropped 0.7%. Strong corporate earnings in Europe helped keep the losses in check.

Wall Street futures pointed to a lower open, although in Asia MSCI's broadest index of Asia-Pacific shares eked out a 0.15% rise.

The MSCI world equity index, which tracks shares in 50 countries, was slightly lower on the day.

Westpac analyst Sean Callow said markets were "clearly on edge" and vulnerable since a lot of traders had assumed tension was ebbing.

Investors sought safety in government bonds and yields on the U.S. 10-year bond dropped more than 2 basis points to 2%. There was also a fall in yields on the German 10-year government bond, the go-to safe-haven asset in the euro zone.

The Russia-Ukraine crisis is unnerving investors at a time when markets were already struggling because of concern that the pace of monetary policy tightening and the reduction in cheap cash will take some of the air out of highly valued share prices. Most major markets are down sharply in 2022, with the tech-heavy Nasdaq down by 12%.

Some investors advised clients not to panic over the geopolitical crisis, however.

"Drawdowns driven by geopolitical stress events are typically short-lived for well-diversified portfolios," said Mark Haefele, chief investment officer at UBS Global Wealth Management.

He added that their base case was a "relaxation of geopolitical tensions".

GOLD SHINES

Gold prices broke higher to hit an eight-month high of $1,890 an ounce, up 1.2% on the session and helped by the broad nervousness across markets and worries about inflation.

Crude oil reversed some losses after earlier tumbling more than 2% on optimism that negotiations will salvage Iran's 2015 nuclear deal and bring more supply to a tight market.

By afternoon, U.S. West Texas Intermediate (WTI) crude was down 1.2% to $92.46 a barrel, while Brent slid 1% to $93.80 a barrel.

Worries about a super-hawkish Fed rate-tightening campaign, potentially including a 50 basis-point hike next month, took a step down overnight after minutes of the latest policy meeting signaled a more measured, data-dependent approach from central bank officials.

The dollar was higher against most currencies but remains down marginally for the week.

 

(Additional reporting by Kevin Buckland and Selena Li in Tokyo; Editing by Kim Coghill)