Intensifying Russia-Ukraine Tensions May Lead To Continued Weakness On Wall Street

The major U.S. index futures are currently pointing to a lower open on Tuesday, with stocks likely to extend the steep drop seen to close out the previous week.

Concerns about increased tensions between the Ukraine and Russia will likely continue to weigh on the markets after Russia recognized two Ukrainian separatist regions – Donetsk and Luhansk – as sovereign states.

Russian President Vladimir Putin subsequently ordered troops into the territory as “peacekeepers,” intensifying a crisis the West fears could unleash a major war.

The U.S. and the U.K. plan to impose sanctions against Russia in reaction to the latest developments, while Germany has halted the certification of the Nord Stream 2 gas pipeline.

Early selling pressure may be somewhat subdued, however, as upbeat earnings news has helped offset the negative sentiment.

Shares of Macy’s (M) are moving sharply higher in pre-market trading after the department store operator reported better than expected fourth quarter results, increased its dividend and announced a new $2 billion stock buyback.

Home improvement retailer Home Depot (HD) also reported fourth quarter results that beat analyst estimates and boosted its dividend by 15 percent.

After coming under pressure in morning trading on Friday, stocks fluctuated in the afternoon but still ended the day firmly negative. The major averages extended the steep drop seen on Thursday, with the Dow ending the session at its lowest closing level since early December.

The Dow and the S&P 500 briefly peeked above the unchanged in late-day trading, but moved lower going into the close. The Dow slid 232.85 points or 0.7 percent to 34,079.18, the Nasdaq tumbled 168.65 points or 1.2 percent to 13,548.07 and the S&P 500 fell 31.39 points or 0.7 percent to 4,348.87.

For the week, the Dow and the Nasdaq plunged by 1.9 percent and 1.8 percent, respectively, while the S&P 500 slumped by 1.6 percent.

The sustained weakness on Wall Street came amid lingering geopolitical concerns as the Ukrainian government and Russian state-controlled media continued to exchanged accusations of cease-fire violations in the eastern part of the country.

News that Russian Foreign Minister Sergei Lavrov and U.S. Secretary of State Antony Blinken have agreed to meet in Europe had eased concerns about an imminent Russian invasion of Ukraine, but traders remained wary.

Traders may have been reluctant to hold significant positions going into the long weekend due to the Presidents Day holiday on Monday.

Uncertainty about the outlook for monetary policy also continued to weigh on the markets ahead of an anticipated interest rate hike by the Federal Reserve next month.

On the U.S. economic front, the National Association of Realtors released a report unexpectedly showing a sharp increase in existing home sales in the month of January.

NAR said existing home sales spiked 6.7 percent to an annual rate of 6.50 million in January after tumbling 3.8 percent to a revised rate of 6.09 million in December.

The substantial rebound surprised economists, who had expected existing home sales to slump by 1.3 percent to a rate of 6.10 million from the 6.18 million originally reported for the previous month.

With the unexpected jump, existing home sales reached their highest annual rate since hitting 6.65 million in January of 2021.

Meanwhile, a separate report released by the Conference Board showed an unexpected pullback by its reading on leading U.S. economic indicators.

The Conference Board said its leading economic index fell by 0.3 percent in January after climbing by a downwardly revised 0.7 percent in December.

The dip came as a surprise to economists, who had expected the index to rise by 0.3 percent compared to the 0.8 percent increase originally reported for the previous month.

Oil service stocks showed a significant move to the downside on the day, dragging the Philadelphia Oil Service Index down by 2.1 percent. The weakness among oil service stocks came amid a decrease by the price of crude oil.

Considerable weakness was also visible among telecom stocks, as reflected by the 1.4 percent drop by the NYSE Arca North American Telecom Index.

Airline, tobacco and semiconductor stocks also showed notable moves to the downside, while most of the other major sectors ended the day showing more modest declines.

Commodity, Currency Markets

Crude oil futures are surging $2.64 to $93.71 a barrel after falling $0.69 to $91.07 a barrel last Friday. Meanwhile, after edging down $2.20 to $1,899.80 an ounce in the previous session, gold futures are rising $3.20 to $1,903 an ounce.

On the currency front, the U.S. dollar is trading at 115.10 yen versus the 114.74 yen it fetched on Monday. Against the euro, the dollar is trading at $1.1342 compared to yesterday’s $1.1311.

Asia

Asian stocks retreated on Tuesday after Russia recognized two Ukrainian separatist regions – Donetsk and Luhansk – as sovereign states and ordered troops into the territory as “peacekeepers,” intensifying a crisis the West fears could unleash a major war.

U.S. and allies condemned the deployment of troops in Ukraine as a calculated act by President Vladimir Putin to create a pretext for invasion.

China’s Shanghai Composite Index fell 1 percent to 3,457.15 and Hong Kong’s Hang Seng Index plunged 2.7 percent to 23,520 amid fresh worries over Beijing’s regulatory plans for the tech sector.

Japanese shares fell for a fourth day due to an escalation in tensions around Ukraine. The Nikkei 225 Index tumbled 461.26 points, or 1.7 percent, to 26,449.61, while the broader Topix ended 1.6 percent lower at 1,881.08 ahead of a Wednesday’s public holiday.

Tech stocks suffered heavy losses, with Tokyo Electron, Advantest and Renesas plummeting 4-5 percent. Electronics maker Sharp plummeted 8.3 percent to extend losses from the previous session after changing its chief executive.

On the positive side, drugmaker Daiichi Sankyo jumped 9.6 percent after announcing positive results for the Erhertu cancer drug it co-developed with AstraZeneca.

Australian markets fell, with financials, miners and tech stocks leading losses amid mounting fears of a war in Ukraine. The benchmark S&P/ASX 200 Index ended down 72.30 points, or 1.0 percent, at 7,161.30, after having hit a two-week low earlier in the day. The broader All Ordinaries Index closed 1.1 percent lower at 7,422.20.

The big four banks lost 1-2 percent, while mining heavyweights BHP and Rio Tinto dropped 0.9 percent and 1.4 percent, respectively. Tech stocks extended losses for the fourth consecutive session, with Xero, Wisetech Global and Block Inc. plunging 3-4 percent.

Gold Miner Newcrest rose 2.3 percent and Northern Star surged 4.6 percent after bullion prices hit a nearly nine-month high. Santos and Woodside Petroleum jumped 3-4 percent as oil prices hit a fresh seven-year high.

Seoul stocks retreated as investors kept a wary eye on the developments in Ukraine. The Kospi shed 37.01 points, or 1.4 percent, to finish at 2,706.79. Market bellwether Samsung Electronics and No. 2 chipmaker SK Hynix both fell over 1 percent, while leading chemical firm LG Chem slumped 4.2 percent.

Europe

European stocks are turning in a mixed performance after Russian President Vladimir Putin ordered troops into two breakaway areas of Ukraine that he had earlier recognized as independent.

Calling Russia’s move as an “act of war,” the U.K. and several western allies have threatened sanctions on the country.

Russian sanctions could have implications for global gas markets, particularly in Europe, which is heavily reliant on Russian gas. Europe gets nearly 40 percent of its natural gas and 25 percent of its oil from Russia.

While the U.K.’s FTSE 100 Index is up by 0.2 percent, the French CAC 40 Index is just below the unchanged line and the German DAX Index is down by 0.3 percent.

German automaker Volkswagen has surged after saying it is in advanced discussions with Porsche Automobil Holding SE about a potential IPO of the luxury carmaker.

Chilean miner Antofagasta has also shown a significant move to the upside after reporting a record full-year profit.

On the other hand, beverage firm Coca-Cola HBC has slumped despite posting annual profit ahead of market expectations.

Telecom company Telefónica Deutschland has also moved lower after extending the contract of Chief Executive Officer Markus Haas by three years.

In economic news, the headline German IFO business climate index improved to 98.9 in February from 96 in January (revised from 95.7).

Separate data showed U.K. public sector net borrowing excluding public sector banks showed a surplus of GBP 2.9 billion in January, which was GBP 5.4 billion less borrowing than in January 2021.

Nonetheless, this was still a GBP 7.0 billion smaller surplus than in January 2020, before the coronavirus pandemic.

U.S. Economic Reports

Standard & Poor’s is scheduled to release its report on home prices in major metropolitan areas in the month of December at 9 am ET.

At 10 am ET, the Conference Board is due to release its report on consumer confidence in the month of February. The consumer confidence index is expected to drop to 110.0 in February from 113.8 in January.

The Treasury Department is scheduled to announce the results of this month’s auction of $52 billion worth of two-year notes at 1 pm ET.

At 3:30 pm ET, Atlanta Federal Reserve President Raphael Bostic is due to speak on the role of the Federal Reserve in the community and participate in a moderated conversation before a virtual event with Duke University students.

Stocks In Focus

Shares of Tempur Sealy (TPX) are seeing significant pre-market weakness after the mattress company reported fourth quarter results below analyst estimates.

Sports betting company DraftKings (DKNG) may also come under pressure after Wells Fargo downgraded its rating on the company’s stock to Equal Weight from Overweight.

Meanwhile, shares of Houghton Mifflin Harcourt (HMHC) are moving sharply higher in pre-market trading after the learning technology company agreed to be acquired by private equity firm Veritas Capital for about $2.8 billion in cash.

Television station operator Tegna (TGNA) may also see initial strength after agreeing to be acquired by an affiliate of Standard General for $24.00 per share in cash.