Global risk appetite hurt by Ukraine fears
European stocks have opened higher after a downbeat Asian session, with world stocks set for their biggest monthly drop since the pandemic hit markets in March 2020.
The move is attributed to fears over tensions between Russia and the West and the prospect of monetary policy tightening.
A build-up of Russian troops on Ukraine's border has caused fears that Russia will invade. NATO said on Monday it was putting forcing on standby and reinforcing eastern Europe with more ships and fighter jets.
The US Federal Reserve begins its two-day meeting on Tuesday. It is expected to give guidance about the trajectory of monetary policy tightening ahead of the meeting in March in which investors expect the first post-pandemic rate hike.
Tightening monetary policy typically hurts riskier assets, such as equities, and makes government bonds more attractive to investors.
After a weak Asian session in which stock indices extended Wall Street's losses, European markets opened higher.
The STOXX 600 was up 0.5 per cent, showing some signs of recovery after it dropped to its lowest since October on Monday.
London's FTSE 100 was up 0.3 per cent.
But the MSCI world equity index, which tracks shares in 50 countries, was down 0.2 per cent.
World stocks have fallen 6.5 per cent this month, the most since the 13.8 per cent monthly drop when the COVID-19 pandemic hit markets in February 2020.
"What we have seen in a combination of the rising geopolitical risk ... in combination with the market downside risk triggered by the more hawkish Fed," said Eddie Cheng, head of international multi-asset investment at Allspring Global Investments.
Cheng said the geopolitical risk surrounding Ukraine would last for much longer, whereas investors were likely to get more certainty from the Fed at the meeting this week.
The world equity index has fallen below its 200-day moving average. The last time this happened, stocks had a 30 per cent drop and bounce.
The sell-off in equities had limited impact on rates markets, with investors pricing in about 100 basis points of rate hikes for the Federal Reserve and Bank of England this year.
Although investors do not expect a rate hike at this week's Fed meeting, the market is pricing in a 5.4 per cent chance of this happening, according to Refinitiv data on Eikon.
The US 10-year yield was at 1.7778 per cent, a touch higher on the day.
Germany's benchmark 10-year yield was up 3 bps at -0.073 per cent , with bonds supported by the risk-averse tone.
The US dollar index was up 0.2 per cent at 96.07, while euro-dollar slipped.
Oil prices recovered some of the previous day's losses, as the geopolitical tensions fuelled supply fears.
Meanwhile, cryptocurrencies slipped further. Bitcoin was trading around $US36,230 dollars. On Monday it hit a six-month low of $US32,950.72, having halved since its latest all-time high of $US69,000 hit in November.
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