- Before the close of US stock index futures trading, S&P 500 futures fell below the 4,300 level.
- Russia will recognize the independence of breakaway regions in eastern Ukraine, raising tensions and weighing on sentiment.
- Dovish comments from the Fed may have contributed to the downside as US core PCE inflation data is due later in the week.
S&P 500 futures fell sharply on Monday as geopolitical tensions calmed amid expectations that Russia would recognize the independence of two breakaway provinces in eastern Ukraine, setting the stage for further military escalation in the region. After a long speech in which he explained the history of Ukraine and was highly critical of the country, Russian President Vladimir Putin formalized the recognition of the breakaway regions. Trading in US stock index futures has been halted since 18:00 GMT and will not restart for a few hours when Asian markets open, but now before S&P 500 futures fell below the level 4,300 for the first time since the end of January. When futures trading reopens, traders will no doubt be watching for a test of the January lows closer to 4200.
Another factor that likely weighed on US stock futures on Monday was aggressive comments from Fed policymaker Michelle Bowman. Bowman said she was too early to tell if the US economy needs a 50bp rate hike in March, which keeps the door open to the prospect of a larger rate move. As market commentators have noted, the fact that geopolitics has come to the fore as the main market-moving theme in recent weeks does not mean that investors have forgotten about Fed tightening fears.
An upside surprise, coming on the heels of the upside surprises for January’s consumer and producer price inflation readings, could provide more case for a 50bp move, although most analysts see the data from the February CPI as a key. Regardless, the data is not likely to go down well in the US equity space and, if combined with a further escalation of the Ukraine crisis, would imply a real risk of breaking new yearly lows in the area of 4,200. Note that Monday’s S&P 500 futures close left the index more than 10% below all-time highs above 4800 reached earlier in the year, confirming a correction. Investors will worry that this correction will now turn into a bear market (a 20% drop).
Source: Fx Street
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