By Tommy Stubbington
European stocks fell Friday as a fresh sign of escalation to the
conflict in Ukraine rattled investors' nerves.
The Stoxx Europe 600 fell sharply after a controversial Russian
aid convoy passed onto Ukrainian territory Friday morning, and was
0.4% lower midway through the session.
Kiev has said it viewed the movement of the convoy across the
border as an act of aggression.
Germany's DAX index, which is highly sensitive to any increase
in tensions between Moscow and the West, fell 0.7%. France's CAC 40
was 0.9% lower and the U.K.'s FTSE 100 lost 0.3%.
The news from Ukraine interrupted a quiet session, which had
seen Europe's recent stock rally pause as investors await speeches
from major central bankers.
U.S. stock futures turned lower, indicating a 0.3% opening loss
for the S&P 500, which closed at a fresh all-time high. Changes
in futures aren't always accurately reflected in market moves after
the opening bell.
This week's stock rally comes ahead of speeches by U.S. Federal
Reserve Chairwoman Janet Yellen and European Central Bank President
Mario Draghi at the Jackson Hole Economic Policy Symposium later
Friday.
Many analysts expect Ms. Yellen to reassure markets that
interest rates will stay low for some time, despite Fed minutes
this week that showed officials had discussed an earlier hike.
"Markets are arguably pricing in a clearly dovish speech. Should
Yellen suggest that the more hawkish [Fed] members are starting to
influence her thinking then we could see significant volatility:
most likely higher bond yields, lower equities," said analysts at
Rabobank.
Safe-harbor bonds gained Friday, pulling U.S. 10-year Treasury
yields down to 2.38%, while 10-year German yields fell to 0.97%,
slightly above their recent record low.
In currency markets, the euro was steady at $1.3271 against the
dollar. The common currency has weakened in recent months as
investors expect the ECB to consider fresh easing measures while
the Fed moves toward rate hikes.
With alarmingly low inflation in the euro zone, investors will
be on the lookout for any hints of new policies from Mr.
Draghi.
"Although our base case scenario remains for no change of ECB
stance, an unexpected shift in message cannot be ruled out. At the
very least we suspect Draghi will be cautious not to stand in the
way of the recent depreciation in the euro," said currency
strategists at BNP Paribas.
In commodities markets, gold was up 0.5% at $1,282.00, while
Brent crude oil was down 0.3% at $102.36 a barrel.
Write to Tommy Stubbington at tommy.stubbington@wsj.com