LONDON: European stocks opened higher on Tuesday after a bearish Asian session, with global equities set to see their biggest monthly decline since the pandemic hit markets in March 2020.
This decision is attributed to fears of tensions between Russia and the West and the prospect of a tightening of monetary policy.
A buildup of Russian troops on the Ukrainian border raised fears of a Russian invasion. NATO said on Monday it was putting the forcing on hold and bolstering Eastern Europe with more ships and fighter jets.
The US Federal Reserve begins its two-day meeting on Tuesday. It should provide guidance on the trajectory of monetary policy tightening ahead of the March meeting when investors expect the first post-pandemic rate hike.
Tighter monetary policy generally hurts riskier assets, such as stocks, and makes government bonds more attractive to investors.
After a weak Asian session in which equity indices extended Wall Street losses, European markets opened higher.
The STOXX 600 rose 0.5%, showing signs of recovery after falling to its lowest since October on Monday.
London’s FTSE 100 rose 0.3%.
But the MSCI World Equity Index, which tracks stocks from 50 countries, fell 0.2%.
Global stocks have fallen 6.5% so far this month, the most since the 13.8% monthly decline when the COVID-19 pandemic hit markets in February 2020.
“What we’ve seen in a combination of the growing geopolitical risk…in combination with the market downside risk triggered by the more hawkish Fed,” said Eddie Cheng, head of international multi-asset investments at Allspring Global Investments.
Cheng said the geopolitical risk surrounding Ukraine will last much longer, as investors were likely to get more certainty from the Fed at this week’s meeting.
The global stock market index fell below its 200-day moving average. The last time this happened, stocks fell 30% and rebounded.
But Allspring’s Cheng said it was unlikely there would be such a drop this time around, absent such a big driver as the onset of the COVID-19 pandemic.
“We don’t expect stocks to fall on a single geopolitical risk,” he said.
The sell-off in equities had a limited impact on rates markets, with investors anticipating around 100 basis points in rate hikes for the Federal Reserve and Bank of England this year.
Although investors aren’t expecting a rate hike at this week’s Fed meeting, the market is pricing in a 5.4% chance of that happening, according to Refinitiv data on Eikon.
At 09:15 GMT, the US 10-year yield was at 1.7778%, slightly higher on the day.
Germany’s benchmark 10-year yield rose 3 basis points to -0.073% as bonds were supported by risk aversion.
The US dollar index rose 0.2% to 96.07, while the euro-dollar slipped.
Oil prices recouped some of yesterday’s losses as geopolitical tensions fueled supply fears.
Meanwhile, cryptocurrencies slid further. Bitcoin was trading around $36,230. On Monday, it hit a six-month low of $32,950.72, having halved since its last all-time high of $69,000 hit in November.
(Reporting by Elizabeth Howcroft; editing by David Evans)
