European stocks were sharply lower on Monday (Feb. 14) as investors continued to track tensions in Ukraine which sparked nervousness at the start of the week.
The pan European Stoxx 600 dropped 1.99% in early afternoon while Germany’s DAX plunged 2.10% and U.K.’s premier FTSE 100 index was off 1.86%.
Banks led the losses. Commerzbank sank 4% after Germany’s finance minister told Handelsblatt newspaper that the government would not keep its stake in the lender in the long run. Rival lender Deutsche Bank also fell more than 4%.
Staying in Germany, all eyes will be on German Chancellor Olaf Scholz’s visit to Ukraine today to find a diplomatic solution to the crisis, ahead of a meeting with Russian President Vladimir Putin in Russia tomorrow.
A telephonic conversation between Putin and his U.S. counterpart Joe Biden over the weekend failed to ease tensions.
A senior U.S. administration official described the call as “professional and substantive” but noting there was “no fundamental change in the dynamic that has been unfolding now for several weeks.”
Moscow says that Washington and NATO had failed to address its main security concerns, blaming the West of stoking hysteria over the Ukraine crisis.
Russian assets pulled back much of earlier losses by mid-afternoon. The MOEX bluechip index was last down 1.55% and the RTS Index 2.23%. Putin agreed on Monday to continue diplomatic negotiations on the Ukraine crisis after Russian Foreign Minister Sergey Lavrov proposed further talks and said he can see a “way forward” from the current standstill. Russia’s top diplomat also warned “against endless conversations” according to media reports.
Geopolitical risks in Ukraine added to broader worries around aggressive monetary policy tightening by the Federal Reserve.
An alarming U.S. inflation print last week prompted St. Louis Fed President James Bullard to support a cumulative 100 basis point interest rate hike by July 1. However, San Francisco Fed President Mary Daly said on Sunday that the central bank should be measured in its path to monetary policy tightening, noting that “abrupt and aggressive action can actually have a destabilizing effect” on growth and price stability.
Following the sell-off seen over the two previous sessions, stock markets in the United States opened flat on Monday. The Dow Jones, the Nasdaq 100 and the S&P 500 were all flat at 9:31 am ET.
Shares in Asia-Pacific also fell broadly on Monday, with Japan leading losses. The Nikkei 225 Index plunged 2.2% to 27,079.59, marking its biggest daily percentage drop since January 27.
With tensions running high could diplomacy still work?