Stock futures rebound on diplomacy hopes for Ukraine crisis

Flags of Russia and the Ukraine Divided Diagonally

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Stocks took another dive on Thursday after President Biden warned that the possibility of Russia invading Ukraine was "very high." The S&P 500 ended the session down 2% as a risk-off tone spread across assets, while traditional safe-haven gold got a bid, topping $1,900 an ounce. Meanwhile, the VanEck Russia ETF (BATS:RSX), which tracks companies tied to the country, slumped around 5% on Thursday, as pro-Russia rebels and the Ukrainian army traded accusations of shelling in the eastern Donbas region.

Will they or won't they? Officials in Moscow continue to deny a coming invasion, even calling it "hysteria," but want security assurances that NATO will pull back its presence in eastern Europe or never allow Ukraine to join the military alliance. Ukraine has repeatedly insisted it won't give up those aspirations, and recent discussions have centered around other security issues like missile restrictions and measures to build confidence. U.S. intelligence also continues to maintain that Russia has in fact increased its forces near Ukraine by 7,000 troops, not withdrawn them, and is worried about an increase in "false-flag operations" that the Kremlin might use as pretext for an invasion. With Russia due to end its military drills in neighboring Belarus on Feb. 20, will there be a clearer picture after this weekend?

"In the short term, the market is just moving to the indications that it's seeing out of Russia," said Yung-Yu Ma, chief investment strategist at BMO Wealth Management. "That negativity and that additional cloud over the market definitely has a lot of weight right now."

Next steps: Markets appear to be getting some respite as S&P 500 futures climbed 0.7% overnight, with Russian Foreign Minister Sergei Lavrov agreeing to meet U.S. Secretary of State Antony Blinken in Europe for talks next week. Blinken will also meet counterparts at the Munich Security Conference this weekend, while Biden hosts a call with the leaders of Canada, the U.K., France, Germany, Italy, Poland, Romania, the EU and NATO. Elsewhere, the U.S. Senate passed a non-binding resolution of "unwavering" U.S. support for Ukraine, as well as condemning the 2014 annexation by Russia of the Crimean peninsula.


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