Asian markets are waiting for developments in Ukraine

New York, Tokyo The further development of the Ukraine conflict keeps investors on the capital markets worldwide in suspense. After weak specifications from Wall Street and East Asian trading centers, the Dax is up on Tuesday despite pre-market losses. In the first hour of trading, the Dax gained 1.2 percent to 15,290 points.

On Monday, the leading German index temporarily lost 580 points and fell well below the 15,000 point mark.

Investments that are considered safe continue to come into focus. Gold prices are at their highest since June 2021. A troy ounce (31.1 grams) of the precious metal costs $1881. In the case of government bonds, on the other hand – still in high demand on Monday – investors are more cautious.

The nervousness can be seen in the oil market as an example. Prices for Brent and WTI grades hit their highest levels since 2014 on Monday on fears of possible production losses in the event of an invasion of Russia, before falling slightly again during the course of the day. Oil prices are also lower on Tuesday.

Nevertheless, the $100 per barrel mark for North Sea Brent is still within reach. The price rally that has been going on for months is an expression of the imbalance between supply and demand, which could be exacerbated by the conflict in Ukraine.

In addition to the developments in the Ukraine crisis, there are only a few stock market-related dates on Tuesday. From a company perspective, hardly any impetus is to be expected. The ZEW economic expectations for February and figures on the development of economic output in the euro area in the fourth quarter of 2021 will be exciting.

Wall Street: Third day of losses in a row

The most important indices in the USA had confirmed the currently weak investor sentiment at the start of the week. The leading index Dow Jones closed 172 points or 0.5 percent in the red. The broader S&P lost 0.4 percent to close at 4,402 points. The Nasdaq technology exchange closed slightly weaker at 13,791 points. All three major indices posted losses for three days in a row.

US Secretary of State Anthony Blinken announced the closure of the embassy in the Ukrainian capital, Kiev. It should be relocated to Lviv in the west of the country. Blinken referred to a “dramatic acceleration in the build-up of the Russian armed forces”. According to the Wall Street Journal, the US State Department orders the destruction of computer equipment.

>> Read all the latest developments about Ukraine here: USA move embassy from Kiev to Lviv – US citizens should leave Belarus

A possible invasion of Ukraine would be a major risk for stock markets, Morgan Stanley’s equity strategist Michael Wilson warned in an analysis. For example, higher energy prices “would, in our view, destroy demand and send several economies straight into recession,” warns Wilson, who is known for his pessimistic views.

Asian indices are also turning negative

As a result, Asia’s investors waited a long time for the further development of the conflict – in the end the pessimistic view won: While stocks and currencies were traded little changed in morning trading, important indices slipped into the red in the afternoon.

While Singapore’s Straits Times Index and China’s Shanghai Composite Index held up, Korea’s Kospi Index fell a percent 2676 points. The Hong Kong Hang Seng Index also lost almost one percent. Japan’s Nikkei 225 index ended trading at 26,865 points, down 0.8 percent from Monday’s close.

For the time being, the strategists at the major bank ING do not believe in an actual turnaround: According to the strategists, it is unlikely that the willingness to take risks will return as long as there is no more concrete solution to the conflict.

Also read about the Ukraine crisis:

There is hardly any impetus for this from Asia either, countries are more likely to join one of the conflicting camps: China has expanded its cooperation with Russia, while the US ally Japan is threatening sanctions in the event of a Russian attack on Ukraine. Details are currently being finalized jointly by the foreign, finance and economic ministries and coordinated internationally.

Not even positive economic data could move investors in Japan: In the fourth quarter of 2021, the gross domestic product of the world’s third largest economy was 1.3 percent higher than in the previous quarter. That wasn’t just the first increase after two negative quarters. After a decline in economic output in 2020 as a whole, Japan grew again in 2021, albeit only moderately by 1.7 percent.

This value is significantly worse than in neighboring countries: In South Korea, the economy grew by four percent, in the semiconductor stronghold Taiwan by as much as 6.3 percent and in China by 8.1 percent.

But Maki Sawada, a strategist at Japanese investment bank Nomura, also sees the downturn in share prices as an opportunity to buy into companies cheaply. The prospect of rising interest rates in the USA and the uncertainty in Ukraine would weigh on prices, she said on Tuesday. Still, some stocks that are cheap from an investor perspective are at levels “where it’s easy to buy on a squeeze.” Nevertheless: Sean Darby, strategist at the Jefferies stock house, warns: “Is the worst over? Not yet.”

New discussions about the Fed

Concerns about war are also bringing monetary policy back into the focus of investors. Should the economy cool, that would also persuade the US Federal Reserve to take a less aggressive stance, said Mike Wilson, strategist at major bank Morgan Stanley.

Fed boss Jerome Powell had recently announced a much tighter course in monetary policy, with the first interest rate hike in March. Then the reduction of the balance sheet total should begin.

Stocks would remain in correction mode, Wilson clarified. The broad S&P 500 is already down 8 percent this year. The technology exchange Nasdaq was 15 percent below its recent all-time high on Monday.

Goldman Sachs is now expecting seven rate hikes this year instead of five. The bank also lowered its outlook for the stock market year and expects the S&P could gain just 2.8 percent this year.

UBS was more optimistic on Monday: “Despite the recent volatility, it is important to remember that we are still in an environment where the economy and corporate profits are growing robustly,” said investment chief Mark Häferle. He expects both geopolitical tensions to ease and inflationary pressures to ease. “That will cause the markets to rise again.”

>> Read here: If Russia gets serious: how will the stock market react?

James Bullard, head of the regional central bank in St. Louis, didn’t want to have anything to do with it. He spoke out in favor of fighting inflation more vigorously than previously planned. The central bankers were surprised by the sharp rise in prices, he admitted on the US stock exchange broadcaster CNBC. Consumer prices rose 7.5 percent in January compared to a year earlier. “That’s a lot of inflation,” Bullard said. He was therefore in favor of scaling back monetary policy support more quickly.

“Our credibility is at stake and we need to act on the data,” Bullard said. However, he assumes that this could happen without causing distortions in the markets.

Esther George, President of the Kansas City Fed, was a little more cautious. The central bank should take a systematic approach to unwinding the supportive measures, George said. At the same time, however, she must be careful not to “oversteer”.

More: If Russia gets serious: how will the stock market react?