NEW YORK (Reuters) - Russia’s intervention in Ukraine drove up crude oil and prices for gold and government debt on Monday as the heightened tensions spurred investors to seek safe havens and sell any exposure to the region.
Crude prices rose more than $2 a barrel, gold futures jumped 2 percent and prices of top-rated euro zone government bonds surged. The aversion to risk took a steep toll on stock markets, with the Moscow bourse slumping 11 percent, wiping nearly $60 billion of value off Russian companies.
Stocks across Europe and on Wall Street also took a beating.
Market volatility indexes, a sign of investor apprehension, surged, with the Euro STOXX Volatility Index .V2TX spiking 30.4 percent in its biggest one-day gain since 2011. The U.S. CBOE volatility index surged 20 percent at one point, and ended the session 14.5 percent higher.
“Investors had underestimated the risks of an escalation in Ukraine, so the events over the weekend are a wake-up call for the market,” said David Thebault, head of quantitative sales trading at Global Equities in Paris.
President Vladimir Putin’s forces tightened their grip on the Crimea region of Ukraine, sparking the stock plunge in Moscow and forcing Russia’s central bank to spend $10 billion of reserves to prop up the ruble.
Ukraine said Russia was massing armored vehicles on its side of a narrow stretch of water closest to Crimea after Putin declared over the weekend that he had the right to invade his neighbor to protect Russian interests and citizens.
The ruble traded off about 1.45 percent after earlier touching record lows against the dollar and the euro. The central bank lifted its base lending rate by 1.5 percentage points to 7 percent at an unscheduled meeting.
Russia’s sovereign dollar bonds also fell, while the cost of buying five-year swaps to insure against a Russian debt default jumped 33 basis points.
Ukraine’s hryvnia currency fell to a record low against the dollar, pushing the country’s dollar bonds down 6 points. Safe-haven German Bund futures settled up 76 ticks at 145.14.
Banks took the most points off European stock indexes, with lenders exposed to Ukraine and Russia falling sharply. The Euro STOXX banks index .SX7E fell 3.8 percent in the biggest drop since last August. Austria’s Raiffeisen (RBIV.VI) slumped 9.6 percent, while France’s Societe Generale (SOGN.PA) fell 5.4 percent and Italy’s UniCredit (CRDI.MI) lost 6.2 percent.
The pan-European FTSEurofirst 300 index .FTEU3 fell 2.2 percent to close at 1,318.24.
No major European stock market escaped the sell-off, with Germany's DAX .GDAXI particularly hard hit, falling 3.4 percent in its biggest single-day drop since May 2012.
“This has shown itself to be a broad risk-off event. Most of the action has been focused on stocks in Europe and the energy sector. A good portion of the market has not reacted to a large degree,” said Sam Diedrich, a portfolio manager at Pacific Alternative Asset Management Co. in Irvine, California.
“The most likely end-game is a grumpy compromise that allows Ukraine to go its own way in the world while allowing Russia more influence over Crimea,” said David Kelly, chief global market strategist at JPMorgan Funds in New York.
“If so, uncertainty should fade and the economic data, as the weather improves, should still support a modest over-weight to U.S. stocks over bonds,” Kelley said.
Putin will not back off but has no need to push further, suggesting markets might soon rebound, said Brad McMillan, chief investment officer at Commonwealth Financial, in Waltham, Massachusetts.
“With the substantial downsides and costs of the West trying to reverse it, Europe will probably punt and we will revert to normal faster than anyone expects,” McMillan said.
The declines in Europe followed overnight weakness in Asia, with MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS down 0.9 percent and Japan's Nikkei 225 .N225 skidding 1.3 percent.
On Wall Street, the Dow Jones industrial average .DJI closed down 153.68 points, or 0.94 percent, at 16,168.03. The S&P 500 .SPX lost 13.72 points, or 0.74 percent, to 1,845.73 and the Nasdaq Composite .IXIC dropped 30.818 points, or 0.72 percent, to 4,277.301.
For U.S. investors, Russia’s intervention in Ukraine comes just as economic data has been expected to improve and provide further upside for stocks on Wall Street, noted David Joy, chief market strategist at Ameriprise Financial.
Data released on Monday showed renewed strength in U.S. manufacturing. But tensions over Ukraine have changed the investment outlook at a time when valuations for U.S. equities are not cheap, Joy said.
“Being expensive, it makes sense to me to take some risk off the table and wait to see how this plays out,” he said.
U.S. factory activity rose in February to its highest level since May 2010, according to financial data firm Markit. Separately, the Institute for Supply Management said its index of U.S. factory activity rose to 53.2 in February, topping expectations.
The dollar and yen gained as investors sought the safety of those currencies after Russia’s intervention.
The greenback was also supported by economic data showing an increase in U.S. personal income and spending in January in the midst of one of the worst winters in recent memory.
The dollar index .DXY was up 0.47 percent to 80.068. The dollar’s gains pushed the euro 0.51 percent lower at $1.3732.
Crude oil prices jumped. Brent crude hit a peak of $112.39 a barrel, the highest level since December 30. Brent settled $2.13 higher at $111.20 a barrel. U.S. crude jumped $2.33 to settle at $104.92 a barrel.
Gold futures settled up $28.70, or 2.2 percent, at $1,350.3 an ounce.
U.S. government bond prices rose, with the 10-year note up 16/32 in price to yield 2.6030 percent.
Reporting by Herbert Lash; Additional reporting by Simon Jessop in London; Editing by Leslie Adler and Dan Grebler