Wall Street and European stocks fall as pressure mounts on Russian financial system

Wall Street and European stocks fell, oil prices rose, the ruble plunged and US government bonds rebounded after new sanctions on Russia spilled over into financial markets.

The US S&P 500 stock index fell 0.2% in New York, with more than 70% of companies in the benchmark falling in value. The tech-heavy Nasdaq Composite advanced 0.4%, rebounding from an earlier loss of 1.1%.

In Europe, the regional Stoxx 600 equity gauge closed down 0.1%. The Stoxx Banks sub-index fell 5.7% as traders reacted to uncertainty over Western allies excluding some Russian lenders from the Swift payment system. The German Xetra Dax lost 0.7%.

The moves came after Russian President Vladimir Putin put his country’s nuclear forces on high alert and Western powers imposed sanctions on Russia’s central bank in response to the invasion of Ukraine.

Global stocks rallied on Friday as traders reacted to punitive measures against Russia that did not target the country’s energy exports. But after financial sanctions against Russia were tightened over the weekend, fund managers de-risked their portfolios, closing strong bets on the global economy and future central bank policy while loading low risk and easily tradable assets.

“Investors are reducing their active bets,” said Michael Metcalfe, head of macro strategy at State Street. “Right now is a time to take stock, reduce positions and try to assess all the possible outcomes that could arise” from the geopolitical situation, he added.

Traders were watching closely for any signal of stress in dollar funding markets, as banks and traders expected the sanctions to spill over into global funding markets. Despite changes in currency exchanges and other markets, investors and strategists said there were no indications of serious funding strains yet.

Brent, the international oil benchmark, rose 3.1% to settle at $100.99 a barrel. Futures contracts linked to TTF, the wholesale price of natural gas in Europe, rose 11% to €103 per megawatt hour.

The yield on the two-year US Treasury fell 0.12 percentage points to 1.45%, reflecting a significant rise in the price of the highly liquid debt instrument. The benchmark 10-year Treasury also rebounded, with the yield falling 0.14 percentage points to 1.83%.

“It’s a flight to safety,” said Tatjana Greil Castro, co-head of public markets at credit investor Muzinich & Co.

“It’s a boost for liquid assets and a bit of higher interest rate pricing,” she added, “although the Fed will retain some resolve.”

The moves came as traders were quick to recall how much they expect the Federal Reserve to raise interest rates as the US central bank attempts to rein in soaring inflation. Earlier this month, money markets had called on the Fed to raise rates to around 1.7% by the end of the year. By the end of Monday, those bets had returned to just under 1.4%.

The ruble fell 29% to nearly 118 against the US dollar on Monday morning, later paring some of its declines. Russia’s central bank more than doubled interest rates to 20% on Monday and banned foreign sales of local securities in a bid to stem the fallout from sanctions.

The New York Stock Exchange and Nasdaq also halted trading in Russian securities listed on both exchanges, with the NYSE citing a “regulatory issue”. The list of stocks that ceased trading in New York included Russian internet company Yandex and gaming company Nexters.

Elsewhere, BP shares fell 4% after the British group announced at the weekend that it would sell its nearly 20% stake in Russian oil supplier Rosneft.

In Asia, Hong Kong’s benchmark Hang Seng index fell 1.6% to its lowest level in nearly a year before paring losses to close down 0.2%.

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