Oil surges while most Asian markets slip on Ukraine war fears

SYDNEY • Asian shares mostly fell yesterday as warnings that Russia could invade Ukraine at any time sent oil prices to seven-year peaks, boosted safe-haven bonds and belted the euro.

The United States on Sunday said Russia might create a surprise pretext for an attack as it reaffirmed a pledge to defend "every inch" of Nato territory.

The nervous mood sent Japan's Nikkei tumbling 2.23 per cent, while Singapore's Straits Times Index slipped 0.23 per cent.

South Korea's Kospi fell 1.57 per cent, but Australia's S&P/ASX 200 Index added 0.37 per cent.

Hong Kong's Hang Seng Index lost 1.41 per cent, and the Shanghai Composite Index dropped 0.98 per cent.

Markets have been in convulsions since an alarmingly high US inflation reading sparked speculation that the Federal Reserve might raise rates by a full 50 basis points in March.

The talk was tamped down when the Fed released an unchanged bond buying schedule for the coming month. The US central bank has said it would hike rates only after its buying has ceased.

San Francisco Fed chief Mary Daly also played down the need for a half-point move, saying in an interview on Sunday that being too "abrupt and aggressive" on policy could be counter-productive.

Futures markets have since scaled back the risk of a half-point rise to around 40 per cent, when it had been priced as a near certainty at one stage last week.

Attention will now be on an appearance by St Louis Fed president James Bullard later yesterday, given that he had recently called for 100 basis points of tightening by June.

The chatter sent Treasury yields to peaks last seen in 2019, before geopolitical tensions prompted a safe-haven rally late on Friday. Yields on 10-year notes were last at 1.96 per cent, having been as high as 2.06 per cent last week.

Oil prices yesterday hit their highest in more than seven years on fears that a possible invasion of Ukraine by Russia could trigger US and European sanctions that would disrupt exports from the world's top producer in an already tight market.

Brent crude futures was at US$95.56 a barrel by 0235 GMT, up US$1.12, or 1.2 per cent, after earlier hitting a peak of US$96.16, the highest since October 2014.

US West Texas Intermediate crude rose US$1.28, or 1.4 per cent, to US$94.38 a barrel, hovering near a session high of US$94.94, the loftiest since September 2014.

REUTERS