(Reuters) – European shares took a sharp tumble on Thursday as accusations by Ukraine that Russia had moved troops across the border brought a three-day global rally to a shuddering halt.
Ukrainian President Petro Poroshenko said Russian forces had entered Ukraine, and he convened his security and defence council to decide how to respond.
The tensions put riskier assets firmly under pressure with Moscow stocks slumping and the top share index in Germany .GDAXI — whose corporate sector has strong trade ties with Russia — dropping more than 1.3 percent after other sources also reported Russian troops had crossed the border to fight alongside separatists.
Wall Street, which has repeatedly set all-time highs in recent weeks, was set to open lower too despite second quarter growth being revised up and unemployment claims falling as part of an early flurry of data.
Safe-haven investments were in demand, with yields on German government bonds DE10YT=TWEB, the traditional go-to asset for risk-wary European investors, hitting all-time lows [GVD/EUR] and the yen JPY= and Swiss franc CHF= on the rise. [FRX/]
The bruised euro EUR= also clung to modest gains as bets were laid aside on possible fresh ECB stimulus next week amid the fast-moving developments in Ukraine and as German CPI data suggested deflation remains unlikely in the bloc for now.
German inflation came in at a steady 0.8 percent ahead of Friday’s euro zone number. Corresponding Spanish figures saw a slightly smaller-than-forecast drop as revised second quarter GDP held up too.
Talk of fresh ECB policy easing erupted last week following a strongly-worded speech from the bank’s President. But sources at the central bank told Reuters on Wednesday that new action was unlikely next week unless Friday’s inflation numbers showed the bloc clearly heading for deflation.
“Germany is roughly 30 percent of the euro zone so if that (inflation rate) stays stable, it limits the downside for the overall region,” said Berenberg Bank economist Christian Schultz. “It seems to me the weaker euro is helping.”
European stocks .FTEU3 had started the day quietly following a subdued showing in Asia [ID:nL3N0QY00U] but as the start of U.S. trading approached, London .FTSE, Frankfurt .GDAXI and Paris .FCHI were nursing losses of 0.5, 1.4 and 0.8 percent. Futures prices ESc1 pointed to Wall Street starting down 0.3 percent.
The news out of Ukraine dealt a blow to hopes of an easing of the conflict after this week’s meeting between Poroshenko and his Russian counterpart Vladimir Putin.
Russia denies intervening in Ukraine by arming the rebels or sending soldiers across the border.
Global stocks tumble as Ukraine accuses Russia of invasion
August 28, 2014 by Leave a Comment