Wayne Cole

SYDNEY, (Reuters) – Asian shares fell Monday after Russia’s warnings about an invasion of Ukraine sent oil prices up to 7-year highs. Bonds were boosted and the euro was blasted.

On Sunday, the United States warned Russia that it might use surprise pretexts to attack. It also reiterated its commitment to protect “every inch of NATO territory.”

MSCI’s Asia-Pacific broadest index, which is not based in Japan, fell 1.2% because of this cautious attitude. Chinese blue chip shares fell 0.6% while their share price dropped 2.6%

After Friday’s steep losses, futures on the Nasdaq fell 0.1% and were slightly lower. EUROSTOXX 50 Futures fell 1.8%, and futures 0.7%.

Since a worryingly high U.S. inflation reading has sparked speculation the Federal Reserve may raise rates 50 basis points or more in March.

A discussion was also raging about an urgent inter-meeting raise. The timing of Monday’s Fed Board meeting was a factor in this, even though it seemed like a routine event.

This was put to rest when the Fed announced an unchanged bond-buying schedule for the upcoming month. Since the Fed has stated it would not increase its purchases until they cease, the Fed did not allow the talk to continue.

Mary Daly of San Francisco Fed, who also spoke out on Sunday about the importance of a half-point movement in an interview. Mary said being too aggressive on policy can be counter-productive.

Since then, futures markets have reduced the chance of a half point rise to 40%. This is a significant reduction from last week’s near certainty.

“Broad-based inflation pressures have given rise to earlier-than-expected pressure for a synchronised shift toward restrictive policy across the globe,” said JPMorgan (NYSE:) chief economist Bruce Kasman.

“But, we don’t expect it will translate into aggressive actions in March,” he said. “In part, this reflects uncertainties related to Omicron, geopolitical tensions, and the purchasing power squeeze from high inflation—all of which weigh heavily on current-quarter growth.”

The St. Louis Fed President James Bullard will appear on Monday. Bullard has recently called for 100 basis point tightening by June.

Rate chatter pushed Treasury yields up to levels not seen since 2019, just before the emergence of geopolitical tensions that prompted a rally in safe-haven assets late Friday. The yields for 10-year notes was last seen at 1.94% after they were as high last week as 2.06%.

As investors predicted that Fed tightening will slow economic growth, the yield curve was also inverted and flattened between 10-year and seven-year maturities.

Since last week’s peak at $1.1495, the threat of war in Ukraine led to the euro falling to $1.1344, down from $1.1495. After a peak at 116.33 the safe-haven currency yen has gained ground, leaving the dollar at 115.37yen.

To restrain yields, the Bank of Japan offered unlimited bond purchasing on Monday

A drop in euro helped lift the currency up to 96.059. This is a significant improvement on last week’s low of 95.172. After jumping 2.9% Friday, the dollar rose to 77.15 rubles.

After rising 1.6% on Friday, gold held gains of $1,859 an troy ounce.

The fear that Russia would invade Ukraine and trigger sanctions by the U.S., and European countries and cause disruption to oil exports in a tight market caused oil prices to climb further. [O/R]

The price of a barrel rose by $1.34 to $94.44 while it was up $1.14 to $95.58