Wall Street futures are down as markets spooked by Ukraine fears and Fed ferocity

LONDON, Jan 25 (Reuters) – European stocks rallied on Tuesday but Wall Street futures fell on jitters over tensions between Russia and the West and the prospect of an upcoming tightening monetary policy of the US Federal Reserve.

These two factors combined have put global equities on track for their biggest monthly decline since the pandemic hit markets in March 2020.

A buildup of Russian troops on the Ukrainian border raised fears in the West of a Russian invasion. NATO said on Monday it was putting its forces on standby and bolstering Eastern Europe with more ships and fighter jets. Read more

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The Federal Reserve begins its two-day meeting on Tuesday. It should provide guidance on the trajectory of monetary policy tightening, with investors expecting the first post-pandemic U.S. rate hike in March. Read more

Tighter monetary policy generally hurts riskier assets, such as stocks, and makes government bonds more attractive to investors.

Asian stock indices extended Wall Street’s losses, but European markets opened higher after falling sharply on Monday.

The European STOXX 600 was up 0.7% at 13:17 GMT, showing some signs of recovery after falling to its lowest since October on Monday (.STOXX).

London’s FTSE 100 rose 1% (.FTSE).

But the MSCI World Equity Index, which tracks stocks from 50 countries, fell 0.2% (.MIWD00000PUS).

S&P 500 futures fell 1.6% while Nasdaq futures fell 2.2%.

Global stocks have fallen 6.5% this month, the most since the monthly decline of 13.8% when the COVID-19 pandemic hit markets in February 2020.

“What we’ve seen is a combination of the growing geopolitical risk…in combination with the market downside risk triggered by the more hawkish Fed,” said Eddie Cheng, head of international multi-asset investing at Allspring Global Investments.

Cheng said the geopolitical risk surrounding Ukraine will last much longer, as investors were likely to get more certainty from the Fed at this week’s meeting.

The global stock market index fell below its 200-day moving average. The last time this happened, stocks fell 30% and rebounded.

But Allspring’s Cheng said it was unlikely there would be such a drop this time around, absent such a big driver as the pandemic started.

“We don’t expect stocks to fall on a single geopolitical risk,” he said.

The sell-off in stocks had a limited impact on rates markets, with investors pricing in around 100 basis points of rate hikes for the Federal Reserve and Bank of England this year .

Although investors aren’t expecting a rate hike at this week’s Fed meeting, the market is pricing in a 5.4% chance of that happening, according to Refinitiv data on Eikon.

The US 10-year yield was at 1.776%, a little higher that day.

Germany’s benchmark 10-year yield rose 2 basis points to -0.083% as bonds were supported by the risk aversion tone.

The US dollar index rose 0.3% to 96.232, while the euro-dollar slipped.

Oil prices recouped some of yesterday’s losses as geopolitical tensions fueled supply fears. Read more

Cryptocurrencies have slipped again. Bitcoin was trading around $36,564. On Monday, it hit a six-month low of $32,950.72, having halved since its last all-time high of $69,000 hit in November.

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Reporting by Elizabeth Howcroft; edited by David Evans, Susan Fenton and Nick Macfie

Our standards: The Thomson Reuters Trust Principles.

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