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Global stock markets clawed back losses on Tuesday as investors held on to hopes that Russia’s deployment of troops to two breakaway regions in eastern Ukraine will be as far Moscow goes.
The spectre of war on Europe’s eastern flank had flared on Monday, sending oil prices to a seven-year high, after Russian President Vladimir Putin ordered troops into the Donetsk and Luhansk regions of Ukraine.
The United States and its European allies started to announce harsh new sanctions in response, with German Chancellor Olaf Scholz warning that the Nord Stream 2 gas pipeline would now be denied certification to begin operating.
Europe’s STOXX 600 index (.STOXX) fell nearly 2 per cent to a seven-month low in early trade. But the mood turned more positive and the index was back around Monday’s closing level after reports that Russia would recognise the current boundaries of the breakaway regions.
The rouble, which has been hammered by the rising tensions in recent weeks, swept higher in FX markets while German equities (.GDAXI) - seen as more vulnerable because of the country’s heavy reliance on Russian gas - also erased losses of more than 2 per cent to trade flat.
Wall Street also erased losses, with futures gauges for the S&P 500 turning positive and Nasdaq recovering from losses of about 2 per cent to trade down 0.4 per cent.
“We are not in the clear, but that gives a path to de-escalation,” said Trium Capital fund manager Peter Kisler, referring to the news on Ukraine border recognition.
The Ukrainian military earlier said that two soldiers had been killed and 12 wounded in shelling by pro-Russian separatists in the east over the past 24 hours.
The prospect of a major European war had prompted investors to dump shares and other riskier assets while Brent crude jumped more than $3 to top $99 at one point for its highest since September 2014, reflecting fears that Russia’s energy exports could be disrupted by any conflict.
Benchmark government debt was also in demand. German government bond yields hit their lowest level since Feb. 4 while US Treasuries rallied.
“Europe is in a very, very uncomfortable situation,” said Michael Hewson at CMC Markets. “What you’re getting is a classic risk-off play here.”
The MSCI world equity index (.MIWD00000PUS), which tracks shares in 50 countries, fell to its lowest since Jan. 28 before trimming losses to stand 0.1 per cent down.
