Stocks fall after Ukraine attacks, interest rate outlook prompts flight to safety By Reuters

By Amanda Cooper

LONDON (Reuters) – Global stocks fell on Monday after a series of explosions in the Ukrainian capital and renewed concerns about the economic outlook sent investors into safe-haven assets such as the dollar and bonds.

Any belief that the Federal Reserve will shift to a softer stance on monetary policy was extinguished on Friday by data that showed the unemployment rate fell in September, signaling a labor market not suffering from red-hot inflation.

The dollar held steady against a basket of currencies, while a range of market-based measures of investor risk jitters showed another rise.

Russian missile strikes during Monday̵[ads1]7;s rush hour across Ukraine killed at least five people in the capital Kyiv, in apparent revenge bombings after President Vladimir Putin declared an explosion on the bridge to Crimea a terrorist attack.

“I had wondered if the markets looked at the situation in Ukraine and thought that this was bringing us to the end – which was the initial reaction to the progress the Ukrainian army had made this summer. That reaction is no longer happening and this is clearly seen as just an increase in tension, rather than the end of something,” said Societe Generale (OTC: ) head of currency strategy Kit Juckes.

“We have geopolitical tensions and we’re still on the path to tighter monetary policy in the United States, and the concern remains when they finish tightening, will they have tightened too much and leave the economy looking quite vulnerable?” added.

The MSCI All-World index fell 0.5% in early European trade, down for a fourth straight day. The pan-European fell 0.5% to its lowest in a week, while it lost 0.1% and fell 0.7%, making it one of the weaker indexes.

fell 0.5%, while those on the Nasdaq lost 0.6%.

Wall Street sank on Friday after an upbeat payrolls report cemented expectations for another big rate hike.

Futures imply a more than 80% chance that interest rates will rise by 75 basis points next month, while the European Central Bank (ECB) is expected to match that and the Bank of England will increase by at least 100 basis points.

CORE GOAL

US consumer inflation is expected to have moderated to 8.1% annually, but the core measure is estimated to have accelerated to 6.5% from 6.3%. The US CPI data is due on Thursday.

“We are in the midst of the largest and most synchronized tightening of global monetary policy in more than three decades,” said Bruce Kasman, head of economic research at JPMorgan (NYSE: ), who expects hikes of 75 basis points from all three central banks.

“The September CPI report should show a moderation in commodity prices which is a likely harbinger of a broader decline in core inflation,” he said. “But the Fed won’t respond to whispers of inflation moderation as long as labor markets are crying out for tightening.”

The minutes from the Fed’s latest policy meeting are also out this week and are likely to sound hawkish given how many policymakers lifted their dot-plot forecasts for interest rates.

Although US inflation and the Fed’s response to it remain central to investors’ minds, Eurozone government bonds got a boost from the rise in investor risk aversion.

German 10-year Bund yields, which serve as the region’s benchmark, fell 3 basis points to 2.162%, while the more sensitive 2-year Schatz fell 8 bps to 1.787%.

Another warning was a 2% drop in Chinese blue-chip stocks, after a survey showed the first decline in services activity in four months.

SEALING TEST

Corporate earnings also start on Friday, with JPMorgan, Citi, Wells Fargo (NYSE:) and Morgan Stanley (NYSE: ) reports results.

“Consensus expects 3% y/y EPS growth, 13% sales growth and 75 bp margin decline to 11.8%,” analysts at Goldman Sachs (NYSE: ) said in a note. “Excluding energy, EPS is expected to fall by 3% and margins to contract by 132 bp.”

“We expect less positive surprises in 3Q compared to 1H 2022 and negative revisions to 4Q and 2023 consensus estimates.”

It rose 0.3% to 113.14, leaving the euro down 0.4% at $0.9697 and the yen flat at 145.45, a whisker away from the recent 24-year high of 145.90 that prompted Japanese intervention . [USD/]

Sterling lost 0.3% to $1.10625, after the Bank of England announced a surprise decision to bolster the gilt market ahead of the end of an emergency bond-buying program on Friday. [nL8N31B0VI]

Oil fell for the first time in a week as investors took profits on last week’s 11% rally following an OPEC+ supply cut deal. [O/R]

fell 0.7% to $97.26 a barrel, while fell 0.6% to $92.08 a barrel.