US Stocks Muted, Treasuries Sell Off As Traders Digest Ukraine War Impact

After best week for Wall Street and European equities since 2020, traders at the New York Session witness benchmark S&P 500 share index moving between small gains and losses on Monday.

Wall Street and European stocks were subdued on Monday, after their best week since 2020, while US government bonds sold off as traders weighed developments in Ukraine with the prospect of sustained global inflation.

The benchmark S&P 500 share index moved between small gains and losses, having closed out last Friday 6.2 per cent higher for the week, although it remained about 6 per cent lower for the year to date. The technology-focused Nasdaq Composite lost 0.2 per cent. Europe’s regional Stoxx 600 share index, which last week erased all losses incurred since Russia invaded Ukraine in February, also wavered on Monday.

The S&P 500 is trading about 0.1% higher, in the 4,470 area after a dip back towards 4,450 earlier in the session was bought into. The index managed to hit its highest level since mid-February at 4,480.

The Dow is an underperformer, as a result of steep downside in Boeing’s (-3.8%) share price, which makes up just under 4.0% of the index’s weighting. This came after a 737-800 jet crashed in China. The index is currently trading about 0.5% lower, though for now remains well supported above the 34,500 level. The S&P 500 Volatility Index or VIX was last down at its lowest level in more than one month in the 23.00s, about half a point lower on the day.

US Treasury prices meanwhile dropped sharply as bond traders cranked up their bets on central banks responding to surging inflation with interest rate rises, reducing the appeal of the fixed-income securities. Some observers were really surprised to see equities turn so positive last week.

The economic impact of the war is increasing the risks of commodity inflation continuing beyond any resolution of the conflict because of sanctions against Russia and higher input prices denting companies’ profits.

Brent crude oil rose 5.1 per cent to $113.33 a barrel on Monday, taking its increase since the day before Russian president Vladimir Putin launched his invasion of Ukraine to more than 17 per cent. Russia is the world’s second-largest supplier of crude oil, and while the EU has not yet followed the US in banning Russian imports, it is facing mounting calls to do so.

The moves came as fierce fighting engulfed the Ukrainian port city of Mariupol, even after Turkey, which is mediating peace talks, claimed Moscow and Ukraine were converging on key aspects of an agreement. Yields on US Treasuries maturing in every period from two years to 30 years ahead rose as prices of the debt fell.

The benchmark 10-year Treasury yield added almost 0.1 percentage point to 2.24 per cent on Monday. The yield on the five-year note also gained 0.1 percentage points to 2.24 per cent while the two-year yield, which closely tracks interest rate expectations, added 0.07 percentage points to 2.03 per cent.