Monday February 28th


Dow futures fall nearly 500 points as sanctions slam Russia and leaders meet for talks

U.S. stock market index futures moved lower early Monday but were off their morning lows as Russian and Ukraine officials gathered to discuss a potential end to the hostilities between the two sides. Dow futures dropped 490 points, or about 1.4%. S&P 500 futures fell 1.6% and Nasdaq 100 futures lost 1.4%. Dow futures were off more than 500 points earlier. The moves come amid turmoil over the conflict between Russia and Ukraine, where Ukrainian forces have held key cities including the capital of Kyiv. At the same time, Ukraine officials have arrived near the border for talks with Russian officials. “Traders will be watching for any signs of resolution on the Russian crisis (negotiated peace or a signs of a near-term victory for either side) or for signs tensions could be worsening raising the chance of a world war involving NATO members,” wrote Jim Paulsen, chief investment strategist for the Leuthold Group. “As news trickles out supporting either thesis, expect daily stock market action to remain volatile.” In the most recent financial developments, the Central Bank of Russia more than doubled its key interest rate, to 20% from 9.5% in reaction to a currency move that saw the ruble tumble nearly 16% against the U.S. dollar. “We may have seen the sharpest depreciation of the ruble in modern history, but this is hardly a bottom,” wrote Alex Kuptsikevich, FxPro senior market analyst. “It will be possible to talk about movement towards stabilization only after appropriate steps from politicians.” In premarket trading in the U.S., defense stocks like Lockheed Martin and Northrop Grumman rose while shares of major banks were under pressure. Over the weekend, the U.S. joined allies in Europe and Canada in moving to bar key Russian banks from the interbank messaging system, SWIFT. The system connects more than 11,000 banks and financial institutions in more than 200 countries and territories. Russian military vehicles entered Ukraine’s second-largest city Kharkiv with reports of fighting taking place and residents being warned to stay in shelters. Russian President Vladimir Putin put his country’s nuclear deterrence forces on high alert Sunday amid a growing global backlash against the invasion. Ukraine’s Defense Ministry said representatives for Ukraine and Russia have agreed to meet on the Ukraine-Belarus border “with no preconditions.” U.S. and global equities experienced volatile trading last week as geopolitical tensions between Russia and Ukraine escalated. Early Thursday morning local time, Moscow launched military action in Ukraine. U.S. West Texas Intermediate (WTI) crude future rose more than 5% to around $96.30 per barrel on Monday. The April Brent crude futures contract also rose nearly 5% to $102.75 per barrel, while natural gas futures were up 4% to $2.84. Government bond yields were sharply lower across the curve, with the benchmark 10-year Treasury note most recently at 1.916%, off 6.8 basis points on the session. A basis point is 0.01%; yields move opposite prices and were lower amid high demand for save-haven bonds. Last week, President Joe Biden reacted to the attack by announcing several rounds of sanctions on Russian banks, on the country’s sovereign debt and Putin and Foreign Minister Sergey Lavrov. The U.S. and European allies have also taken action against Russia’s central bank. “Some Russian banks being removed from SWIFT (energy transactions exempt) and the freezing of the Russian central bank’s access to its foreign currency reserves held in the West clearly increases economic tail risk,” said Dennis DeBusschere of 22V Research. However, he believes Russia can still sell oil and there could be “loop holes” in Russia’s frozen assets, which “might limit the disaster in markets for a few days.” Russia closed its stock exchange on Monday, but the VanEck Russia ETF dropped 25% in premarket trading. Despite the global volatility, the Dow experienced its best day since November 2020 on Friday. Last week, the Dow notched its third week of losses. The S&P 500 and Nasdaq ended the week in green, rising 0.8% and 1.1%, respectively. The Nasdaq Composite is still in correction, about 15% from its record close. The Dow and S&P 500 are just outside of correction territory. Federal Reserve Chairman Jerome Powell testifies before Congress twice in the coming week, and he will be followed closely for any signal on whether geopolitical events are likely to impact Fed rate hikes. Investors will also get a update on the labor department later in the week as the February jobs report is expected Friday. In January, 467,000 payrolls were added; the Dow Jones estimate for February is 415,000. Oil futures were up around 4%, and shares in Asia-Pacific were mixed on Monday as investors monitor the Russia-Ukraine crisis and related sanctions. U.S. West Texas Intermediate crude futures were 4.5% higher at $95.71 per barrel in Asia trade. International benchmark Brent crude was up 3.76% at $101.61. Brent crossed the $100 level last week, even touching $105 before paring gains. Both oil contracts settled more than 1% lower on Friday. Spot gold, traditionally a safe haven in times of uncertainty, last traded at $1,896.70, rising 0.48% after giving up some gains. Markets in mainland China rose. The Shanghai composite gained 0.32% to close at 3,462.31 and the Shenzhen component advanced 0.32% to 13,455.73. In Hong Kong, the Hang Seng index dropped 0.67% in afternoon trade. Japan’s Nikkei 225, after struggling for direction earlier, closed up 0.19% to 26,526.82, while the Topix rose 0.57% to 1,886.93. In South Korea, the Kospi erased losses to rise 0.84% to close at 2,699.18, and the Kosdaq advanced 0.93% to 881.07.