European equities rose and oil prices fell sharply, after Russia said it had started pulling some troops back to their bases following the completion of military drills.
The Stoxx Europe 600 share index, which fell almost 2 per cent on Monday, added 1 per cent on Tuesday morning. London’s FTSE 100 rose 0.5 per cent, and Germany’s Xetra Dax gained 1.3 per cent.
US stock-index futures also gained on Tuesday after the statement from Russia’s defence ministry. Futures contracts tracking the S&P 500 gauge added 1.3 per cent while those tracking the technology-heavy Nasdaq 100 rose 1.9 per cent.
The rally came after Russia’s defence ministry said units of Russia’s southern and western military units were heading back to base following the completion of exercises and manoeuvres.
Russia’s rouble rose 1 per cent against the US dollar, as did Ukraine’s currency, the hryvnia.
Brent crude, the oil benchmark, fell 2.7 per cent to $93.86 a barrel after rallying as high as $96.78 on Monday, its strongest level in seven years. European gas contracts for next-month delivery fell 5.2 per cent to €76.25 a megawatt hour.
Tensions over Ukraine, which have been building for more than two months, have taken centre stage in global markets after the US warned last Friday of an immediate threat Russia would invade its neighbour.
The potential for western sanctions on Russia, a key supplier of oil, gas and metals to global supply chains already snarled up by Covid-19 related disruptions, have sharpened jitters about high inflation and central banks responding with rapid interest rate rises. Consumer prices rose at a record pace in the eurozone last month and hit a 40-year high in the US.
“Russia has reminded people that it has a strategic importance in a world that is moving from a low inflation backdrop to one where inflationary pressures have exploded into the public consciousness and that of the markets,” said John O’Toole, head of multi-asset fund solutions at Amundi.
Sergei Lavrov, Russia’s foreign minister, had on Monday said Moscow was prepared to keep talking to the west, expressing optimism for a “way forward” in negotiations. But the White House later damped hopes of Moscow seeking a diplomatic route out of the Ukraine crisis, warning that Russia’s military was still ramping up plans to invade its neighbour.
Haven asset fell in price on Tuesday, with the US dollar index down 0.3 per cent. The yield on Germany’s 10-year Bund, which moves inversely to the price of the security, rose 0.03 percentage points to just over 0.3 per cent.
The yield on the 10-year Treasury note rose 0.03 percentage points to 2.02 per cent, close to its highest level since late 2019.
The Vix, the measure of expected volatility on the S&P 500, moderated from Monday’s highs but remained at an elevated reading of 26.5.
The Stoxx is down more than 4 per cent this year while the S&P has lost 7.6 per cent.
“The Russia-Ukraine situation is coming at an inopportune time when markets were already fragile,” said Olivier Marciot, cross-asset fund manager at Unigestion, referring to expectations the US Federal Reserve would raise interest rates up to seven times this year, after pinning borrowing costs close to zero in March 2020.
“Markets are therefore being very reactive to any incremental piece of news that comes out.”
