By Tommy Wilkes

LONDON, (Reuters) – Stock markets plunged on Thursday as Ukrainian and Russian-backed separatists accused one another of firing shells. This prompted traders to look for safety in government bonds. Gold prices reached a new 8-month high.

Both sides exchanged accusations that they had fired on the ceasefire line for eastern Ukraine. This alarm came at a moment when Russia is deploying more than 100,000 soldiers close to Ukraine’s borders. While the West accuses Russia, Moscow claims it is withdrawing some troops. Kyiv accuses Russia that it plans to escalate to take back rebel-held territories by force.

Although losses on the stock market were common, they weren’t as severe as recent sessions.

Euro STOXXX fell 0.1% in Europe by 1150 GMT. 100 was down 0.65%. These losses were largely contained by the strong earnings of European corporations.

Wall Street futures indicated a lower open while Asia MSCI’s largest index of Asia-Pacific shares saw a 0.1% increase by the close.

On the same day, the MSCI global equity index which measures shares from 50 countries was slightly lower.

Sean Callow, Westpac analyst, said that markets are “clearly on edge” with vulnerability since many traders assumed that tension would ease.

Government bonds were bought by investors. Yields on U.S. 10-year Treasury notes dropped up to 6 basis points. They were down last 1 bps at 22%.

The yields of Germany’s 10-year bond (the safest asset in the Euro zone) were unchanged at 0.267%.

Investors are worried about the Russia-Ukraine crises just as they were struggling. Investors fear that the rapid pace of monetary tightening, which is triggered central banks’ need to manage soaring inflation, and the reduction of cheap cash will cause more air out of highly-valued assets.

In 2022 most major markets have fallen sharply, while the tech-rich Nasdaq has dropped 12%.

However, some investors advised their clients to not panic about the current geopolitical crisis.

Mark Haefele (chief investment officer, UBS Global Wealth Management) stated that drawdowns caused by geopolitical stress events tend to be short-lived in well-diversified portfolios.

He stated that they were a base case for a relaxation of geopolitical tensions.

GOLD SHADES

Prices for gold rose to an eight-month high at $1,892 an troy ounce. The increase was 1.2% in the session, driven by nervousness and weakening dollar.

(Graphics:https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnwaekpq/gold%20price.PNG)

Although prices dropped sharply, they are still far below their previous lows. Prices had fallen more than 2% earlier on the optimism that Iran will negotiate a 2015 nuclear agreement and provide more supply for a tighter market.

U.S. West Texas Intermediate oil was at $91.65 per barrel last week, down 2.1% from the previous day. However, it fell 1.86% to $93.05 per barrel.

After minutes from the most recent policy meeting, which indicated a data-dependent, more measured approach by central bank officials, fears about an aggressive Fed rate-tightening campaign – potentially leading to a 50-basis-point increase next month – were put aside overnight.

Although the dollar was initially considered a safe-haven currency, it rose in the first quarter against all currencies. However, those gains subsided, and by 1150 GMT, the greenback was slightly lower – an indication that investors weren’t panicking over the Russia-Ukraine tensions.

The Japanese yen was the currency most investors tend to buy when nervous. It has been at its highest since Feb. 7. However, the dollar is down 0.4% and as weak as 114.9 yen.