Gold surged 2% to a four-month high overnight thanks to the escalating tensions between Ukraine and Russia and the other major powers.
The S&P 500 stock index tumbled about 0.7%, as did The Nasdaq, while the Dow was down more than 0.9% after falling by well over 1% earlier in the day.
US Treasury debt prices, the US dollar, the Japanese yen and other commodity prices all rose as investors not unexpectedly sought out safe havens.
Our market was facing a small fall this morning (after yesterday’s volatile day which ended in the red), according to overnight trading on the SPI futures market.
US April Comex gold futures were up $US30.90 at $US1,352.50 an ounce.
That helped push measures of commodity prices to six month highs – one big gainer was a 7% surge in wheat futures prices in Chicago because Crimea is the outlets for much of the wheat exports of Ukraine. Corn prices rose more than 4% as well.
Russia’s military intervention in Ukraine sent crude oil prices up 2% in New York, to around $US104.68, and still rising this morning in Asian electronic trading.
It was the highest close for oil in five months.
US Stocks fall as gold, oil rise on escalation of Ukraine crisis
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The impact of the tensions was felt most of all in Russia.
Russia’s central bank lifted official interest rates 1.5 percentage points to 7%, after the rouble fell to a record low of Rbs36.90 to the dollar (and was seen trading over 37 during the day).
The US dollar rose as investors sought safe haven investments, the Aussie dollar fell under 89 US cents, then regained that level during the day.
Russian shares fell 12% in the wake of the rate rise and the rising tensions in Ukraine.
Shares in the huge Gazprom gas group, which supplies Europe through Ukraine, shedding as much as 17% as spot natural gas prices jumped sharply.
Analysts put much of the selling down to emerging markets investors worried that if fighting breaks out, their money will be stranded.
A series of high level meetings in Europe, the US and Ukraine are due to be held later today, tomorrow and Thursday when EU leaders are scheduled to meet.
The most important might be Nato – The North Atlantic Council has called a meeting to discuss Europe’s reply to the Russian moves.
Nato said in its statement: "The developments in and around Ukraine are seen to constitute a threat to neighbouring Allied countries and having direct and serious implications for the security and stability of the Euro-Atlantic area".
The Nato meeting, plus more meetings of the EU, will be vital in reaching agreement with the US and other major economies on possible reaction to any military escalation of the crisis.
EU foreign ministers has already warned Russia ties will be cut if there’s any escalation, especially in the Crimea, which Russian forced and Russian speaking groups have seized power.
US secretary of state, John Kerry, arrives in Kiev, the Ukranian capital, this afternoon, our time.
He has already warned that Russia’s actions could rebound on it economically, and hinted that Moscow could be ejected from the G8 group of leading economies.
Mr Kerry condemned what he called an “incredible act of aggression” by Moscow. “You just don’t in the 21st century behave in a 19th century fashion by invading another country on a completely trumped-up pretext,” he said on Sunday.
Mr Kerry added that the Russian leader “may find himself with asset freezes on Russian business. American business may pull back, there may be a further tumble of the rouble.”
The US has cancelled trade talks, scheduled for this week, on a bilateral investment treaty and another set of talks with Russia on energy issues. And other members of the group of eight major western economies have pulled out of meetings with Russia.
For those worried about what a possible embargo on Russian gas exports might do, the Financial Times reported this morning:
"A previous dispute over gas prices between Russia and Ukraine in 2009 led to cuts in exports to Ukraine, resulting in shortages in the EU. This happened in winter, when consumption was at its peak.
"Might a similar crisis erupt again? It certainly could.
"However, the EU states currently have significant gas stocks, thanks to a mild winter.
"According to Gas Infrastructure Europe, most central European countries, which rely heavily on Russian gas, had inventories of between 37 and 70 per cent of capacity on Sunday."
In a note late yesterday, the AMP’s chief economist, Dr Shane Oliver wrote:
"Worries about Ukraine have adversely affected share markets today (US S&P futures -0.8%, ASX 200 -0.5% as I write, but both were down more this morning).
"The Ukrainian economy is too small and its problems too specific to have a direct impact on the global economy or an impact via contagion.
"The main risk has always been that it triggers wider Russian/West conflict – resulting eg in a disruption to gas supplies to Europe or a broader military conflict.
"The Russian action in Crimea over the weekend adds to this risk.
"Note though that Crimea has a predominant Russian population, it was part of Russia prior to 1954 and the Russian Black Sea naval fleet is based there. So this all confuses the situation a bit, eg Russia may have done all it plans to do.
"At the moment though markets are focussed on the risk to gas supplies, eg the Eurozone obtains 25% of its gas from Russia – mostly via Ukraine.
"This could be threatened by a broader civil war in the Ukraine and/or if Russia decides to punish Europe for supporting Ukraine. Ukraine is also a big grain producer – hence wheat futures are up.
"Much now depends on how Europe and the US respond in terms of how much support they provide Ukraine, and hence by how much they antagonise Russia.
"My view is that the EU and US will tread carefully knowing how much the Ukraine means to Russia. It would be a bit like Russia meddling in Canada.
"The EU is also likely to be wary of doing anything that might threaten its gas supplies and hence its economic recovery. So I suspect that while there may be a lot of noise on this front it may die down in time.
"The prospect and implications of a broader (Yugoslavian style) civil conflict between western and eastern (more pro-Russia) Ukraine and its impact on the flow of gas is harder to read.
"The best outcome – in terms of reducing market uncertainty – would be some sort of IMF support for Ukraine to enable it to service its debt supported by Russia, the US and the EU with Ukraine staying out of the EU.
"My suspicion is that Ukraine is just another distraction for markets that will fade in the months ahead. But it may take a while to settle down and the uncertainty could get worse before it gets better," Dr Oliver wrote.
