Stocks fall as Ukraine worries finally bite

Share prices have fallen sharply on Wall Street today, despite some encouraging economic data, as concerns over growing tensions between Russia and Ukraine have hit risk appetite.

Political unrest in Ukraine has been going on for some weeks now, but it is only today, with Russia’s parliament approving President Putin’s request to utilise Russian forces across Ukraine, that the markets have reacted strongly to developments in the region.

The heightened geo-political risk has boosted the demand for safe-haven assets, pushing both gold and silver up well over 1%, while the US dollar has weakened 0.35% against the Japanese yen. We were seeing some speculative safe-haven buying in these instruments at the end of last week, but until now the US stock market looked to be carrying on in a business-as-usual manner.

Judging by the plunge in the value of the stock market today, though, investors are starting to get spooked. By mid-afternoon in New York, the Dow Jones was down 1.1% or 180 points at 16,141 and the S&P 500 had fallen  0.8%  to 1844.5, declining despite upbeat macro-economic data.

Today’s two manufacturing gauges showed improvement for the sector. Markit’s final reading for February of its manufacturing PMI was 57.1, a big acceleration in growth from the 53.7 level seen in January and up from the mid-month flash reading of 56.7. Strength in the forward-looking new orders component, which increased to an impressive 59.6 from 53.9 in January, suggests hopes for futures strength look well-justified.

The ISM manufacturing index agreed with Markit’s findings of a higher pace of growth in February, climbing to 53.2 from January’s 51.3. Both these reports had weather-related blips in January, and today’s results suggest the manufacturing sector has had a welcome bounce back in February.

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