A man wearing a face mask, following the coronavirus disease (COVID-19) outbreak, stands on an overpass with an electronic board showing Shanghai and Shenzhen stock indexes, at the Lujiazui financial district in Shanghai, China January 6, 2021.
A man wearing a face mask, following the coronavirus disease (COVID-19) outbreak, stands on an overpass with an electronic board showing Shanghai and Shenzhen stock indexes, at the Lujiazui financial district in Shanghai, China January 6, 2021. Reuters / ALY SONG

Stock markets around the world dipped on Monday as fighting in Ukraine raged on with no sign of a ceasefire even as negotiations continued, while Brent crude prices climbed above $110 a barrel as supplies remained tight.

Turkey's foreign minister said on Sunday that Russia and Ukraine were nearing agreement on "critical" issues and he was hopeful for a ceasefire if the two sides did not backtrack from progress achieved so far.

Most share markets rallied last week in anticipation of an eventual peace deal on Ukraine, but it could take actual progress to justify further gains.

On Monday Ukraine defied a Russian ultimatum that its forces lay down arms before dawn in Mariupol, while the European Union was set to consider a possible energy embargo against Russia.

U.S. President Joe Biden will meet NATO allies on Thursday and visit Poland on Friday.

"The coming days will be a litmus test on whether last week's risk-on rally was overdone. Hopes related to a peaceful resolution in Ukraine have relied on headlines more than evidence," said ING's Francesco Pesole and Chris Turner.

"Should a ceasefire not be agreed in the coming days, markets may struggle to hold on to their sanguine approach to the conflict," they added in a note.

The MSCI world equity index was down 0.1% by 1242 GMT. European shares were choppy with the pan-regional STOXX 600 benchmark last up 0.1%.

The S&P 500 and Nasdaq futures were down 0.1% and 0.3% respectively, while Boeing shares fell 8% in U.S. premarket trade after a 737 jet crashed in China.

In Asia, where Japanese markets were shut for a public holiday, the MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.8% with investors awaiting further details of possible stimulus from Beijing.

BofA's global fund manager survey last week had a bearish bias with cash levels the highest since April 2020 and global growth expectations the lowest since the financial crisis of 2008. Long oil and commodities were the most crowded trade, and vulnerable to a pullback.

The war in Ukraine, surging commodity prices, supply chain issues and policy tightening have all made investors less upbeat about the prospects for global earnings growth.

"The range of outcomes is now unusually wide so at the margin you should rein in the amount of risk you take," said Truist Co-Chief Investment Officer Keith Lerner.

"In the last few years we have had huge upward revisions (on earnings) but this year there is less room for upward earnings surprises. We still think companies will beat estimates but to a lesser degree," he added.

Investors were also waiting to see if Russia would meet more interest repayments this week. It must pay $615 million in coupons this month while on April 4 a $2 billion bond comes due.

Russia's OFZ bond trading returned in a volatile fashion in Moscow on Monday as the country looked to gradually resume operations on its financial markets. Equity trading, suspended since Western sanctions threw markets into turmoil late last month, remained shut.

Bond investors were braced for more hawkish language from the U.S. Federal Reserve with Chair Jerome Powell speaking on Monday and other Fed members through the week.

Policymakers have flagged a string of rate rises ahead to take the funds rate to anywhere from 1.75% to 3.0% by the end of the year. The market implies a 50-50 chance of a half point hike in May and an even greater chance by June.

European Central Bank President Christine Lagarde said on Monday the ECB and the Fed would move out of sync in the foreseeable future, as the war in Ukraine has vastly different effects on their economies.

Germany's 10-year government bond yield hit a new high since November 2018 at 0.440%.


Bond investors seem aware of the risks to growth given the marked flattening of the U.S. Treasury yield curve of recent weeks. The spread between two- and 10-year yields shrunk on Monday to as low as 11.37 basis points, the smallest since the start of the pandemic in March 2020.

Atlanta Federal Reserve Bank President Raphael Bostic said on Monday he had pencilled in a total of eight interest rate hikes for this year and the next, fewer than most of his colleagues as he worries about the effects of Russia's invasion of Ukraine on the U.S. economy.

Higher Treasury yields have helped lift the U.S. dollar versus the yen, where the Bank of Japan remains committed to keeping yields near zero. The dollar remained near its highest since early 2016 and was last just above parity on the day at 119.22 yen, having climbed 1.6% last week.

Elsewhere, the euro fell 0.1% to $1.1035, after bouncing 1.3% last week. The dollar index steadied at 98.34, off its recent peak hit earlier in March at 99.415.

Joseph Capurso, head of international economics at CBA, noted flash manufacturing (PMI) surveys from Europe would be a hurdle for the euro this week.

"Europe is most exposed to lower supply from, and higher prices for, gas and agricultural imports from Russia and Ukraine," he said. "A fall in the Eurozone PMI into contractionary territory could push EUR/USD back closer to its war low of $1.0806 again."

Elsewhere, the Egyptian pound depreciated by almost 14% after weeks of pressure as foreign investors pulled out billions of dollars from Egyptian treasury markets.

In commodity markets, gold has failed to get much of a lift from safe-haven flows or inflation concerns, losing more than 3% last week. It was last up 0.2% at $1,924 an ounce. [GOL/]

Oil prices also lost ground last week, but were pushing higher on Monday as there was no easy replacement for Russian barrels in a tight market.

Brent rose 4.2% to $112.51, while U.S. crude rose 4% to $108.9 a barrel as European Union countries considered joining the United States in a Russian oil embargo, while a weekend attack on Saudi oil facilities caused jitters. [O/R]