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Stocks are likely to extend drop on deepening Ukraine tension

A sign for a Wall Street subway station.
Futures on the Standard & Poor’s 500 and Nasdaq 100 indexes retreated as the U.S. stock market was closed for Presidents Day.
(Associated Press)
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Stocks look set to continue sliding Tuesday on intensifying tension between the West and Russia over Ukraine that’s stoking higher crude oil prices and leading investors to take refuge in bonds and gold.

Equity futures in Japan, Australia and Hong Kong slid after a retreat in European shares. U.S. markets will reopen later from a holiday Monday. Havens including Australian and New Zealand bonds, the yen and the Swiss franc rose.

Russian President Vladimir Putin recognized the self-proclaimed separatist republics Russia backs in eastern Ukraine. The U.S. and Europe condemned the step. The Biden administration has warned Russia’s troop buildup near Ukraine signals it could invade its neighbor, something the Kremlin has repeatedly denied.

Oil surged as traders weighed the risk of disruptions to supplies of energy and other commodities if the situation escalates. Gold was near $1,906 an ounce. The ruble weakened further Monday, and Russian shares slid the most since March 2014, when the annexation of Crimea soured ties with the West.

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The unfolding security crisis in Eastern Europe saddles global markets with the one thing they most dislike — a large amount of uncertainty. The geopolitical risks have already led investors to pare back bets on how aggressively the Federal Reserve may tighten monetary policy this year to fight inflation.

“It’s very difficult to assess risk-rewards in the current environment,” said Damien McColough, head of fixed income research at Westpac Banking Corp. “The Putin recognition of the separatists has added a new dimension that gets us even more concerned that an invasion will happen.”

Fears were heightened after the state-run Tass news service reported Putin had ordered the Defense Ministry to send “peacekeeping forces” to the separatist regions in eastern Ukraine.

Elsewhere, investors continue to monitor commentary from Fed officials for clues on the likely path of monetary tightening.

Fed Gov. Michelle Bowman 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.

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In China, concerns about more tech-sector restrictions — which sank markets Monday — are likely to linger.

Tencent Holdings Ltd. denied online speculation that it’s facing a major regulatory crackdown. Chinese authorities told the nation’s biggest state-owned companies and banks to start a fresh round of checks on their financial exposure and other links to Ant Group Co.

Bloomberg writers Emily Barrett, Garfield Reynolds, Ranjeetha Pakiam, Charlotte Yang and Akshay Chinchalkar contributed to this report.

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