Ukraine tension has stocks retreating

Russian investments sink and ruble weakens for 3rd day in row

Stocks and index futures slumped as the standoff over Ukraine appeared to worsen. Russian stocks sank the most since the 2008 global financial crisis, and the ruble weakened a third consecutive day.

Futures on the S&P 500 and Nasdaq 100 retreated as the U.S. stock market was shut for a holiday. The Stoxx Europe 600 index fell to the lowest level since October. The MOEX Russia Index plunged as much as 14%.

After those markets closed for the day, Euro Stoxx 50 futures extended its decline to more than 4% after Russian President Vladimir Putin recognized the self-proclaimed separatist republics that his country backs in eastern Ukraine. That intensified tension with the West as the U.S. warns Moscow plans an invasion of its neighbor.

The dispute is worsening at the same time another potential threat to the global economy — higher interest rates from central banks, including the Federal Reserve — looms on the horizon.

“In addition to the concerns about the Fed's ability to fight inflation, the specter of war has been added to investors' plate,” Paul Nolte, portfolio manager at Kingsview Investment Management, wrote in a report Monday. “It may be a bit easier to handicap the Fed than it will to guess what Putin will do. Volatility will likely continue to be the norm into the second quarter.”

Futures on 10-year U.S. Treasuries rose, suggesting renewed demand for a haven; the notes themselves aren't trading Monday because of the U.S. holiday. Crude oil futures rose.

The Ukraine standoff coupled with worry that tightening Fed monetary policy could choke growth in the world's biggest economy raise the likelihood of more swings in markets in an already volatile year.

“Global data and central banks' stance on tightening are all taking a back seat to Ukraine, with markets nervously awaiting the next headline,” said Su-Lin Ong, head of Australian economic and fixed-income strategy at Royal Bank of Canada. “Thinner liquidity because of the U.S. holiday adds to the anxiety.”

Fed Governor Michelle Bowman on Monday suggested that a half percentage-point increase in interest rates could be on the table next month if incoming readings on inflation come in too high.

The Fed's key inflation metric accelerated to a fresh four-decade high in January, a report this week is forecast to show, which would bolster the case for higher rates.

Here are some events to watch this week:

• China property prices, loan prime rates Monday

• New Zealand rate decision Wednesday

• BOE Governor Andrew Bailey appears before the Treasury Committee Wednesday

• Bank of Korea policy decision Thursday

• EIA crude oil inventory report Thursday

• Fed officials Loretta Mester and Raphael Bostic speak Thursday

• U.S. new home sales, GDP, initial jobless claims Thursday

• U.S. consumer income, U.S. durable goods, PCE deflator, University of Michigan consumer sentiment Friday

Some of the main moves in markets:

STOCKS

• Futures on the S&P 500 fell 1.2% as of 4:06 p.m. New York time

• Futures on the Nasdaq 100 fell 1.9%

• The Stoxx Europe 600 fell 1.3%

• The MSCI Asia Pacific Index fell 0.4%

• The MSCI Emerging Markets Index fell 1.1% CURRENCIES

• The Bloomberg Dollar Spot Index was little changed

• The euro was little changed at $1.1317

• The British pound rose 0.1% to $1.3604

• The Japanese yen rose 0.2% to 114.82 per dollar

• The offshore yuan was little changed at 6.3264 per dollar

BONDS

• Germany's 10-year yield advanced one basis point to 0.21%

• Britain's 10-year yield advanced three basis points to 1.41%

COMMODITIES

• West Texas Intermediate crude rose 3.2% to $93.95 a barrel

• Gold futures rose 0.3% to $1,906.20 an ounce