Asian stocks lost momentum, and European equity index futures dropped, driven by concerns surrounding the ongoing Ukraine conflict and a pullback in Chinese stocks. The movement marked a shift from earlier gains, with investors eyeing developments in global geopolitics.
Chinese and Hong Kong Markets Experience Setbacks
Mainland China’s benchmark stock index turned negative, while a gauge of Asian equities also slipped into the red. Hong Kong-listed tech stocks, which had recently reached near a three-year high, saw declines. Market volatility increased as high-level US-Russia talks on the Ukraine crisis commenced in Saudi Arabia on Tuesday, but Kyiv was notably absent from the discussions.
Dollar Strengthens, US Treasuries Fall
The US dollar strengthened against all Group-of-10 currencies, reversing a three-day decline. US Treasury yields dropped as markets reopened after the Presidents’ Day holiday. Federal Reserve Governor Christopher Waller indicated that recent economic data supports holding US interest rates steady until there is more progress on inflation.
“There is no clear driver for the weaker tone in markets this afternoon,” said Frederic Neumann, Chief Asia Economist at HSBC Holdings. “Investors are now awaiting the next catalyst, after the recent rally.”
Chinese Stocks Rally Then Retreat
Earlier in the Asian session, Chinese stocks had seen a surge following a meeting between President Xi Jinping and business leaders on Monday. This summit raised hopes of an end to China’s prolonged crackdown on the private sector. Several prominent business figures, including those from tech and electric vehicle industries, attended the meeting. It reflected a softer stance from Beijing towards key companies, aligning with growing tensions between China and the US.
Europe Focuses on US-Russia Talks and Military Spending
In Europe, investor attention is turning to the high-level talks in Saudi Arabia, following a significant phone call between US President Donald Trump and Russian President Vladimir Putin last week. Meanwhile, European bonds weakened, and shares of defense companies surged, fueled by expectations of higher military spending that may lead to increased government borrowing in the coming years.
Federal Reserve’s Stance on Inflation
Fed Governor Waller also noted that if US inflation behaves similarly to last year, the Fed could start cutting rates “at some point this year.”
Australian Stocks and Central Bank Action
Australian stocks continued to lose ground following the central bank’s decision to cut its policy rate. The Australian dollar briefly climbed before retreating after the Reserve Bank of Australia signaled caution regarding future rate cuts, despite the reduction in the official cash rate.
Commodity Markets: Oil and Gold Updates
In the commodities sector, oil prices held steady amid reports that OPEC+ delegates are considering delaying a planned output increase. Meanwhile, Ukrainian drones attacked a crude-pumping station in Russia, contributing to market volatility.
Gold prices remained positive, with the precious metal rising by 0.5% on Monday. Goldman Sachs analysts raised their year-end target for gold to $3,100 per ounce, citing increasing central-bank purchases and inflows into gold-backed exchange-traded funds.
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