LONDON (Reuters) – Global stocks pared losses and the dollar fell on Wednesday after U.S. President Joe Biden told the Group of Seven and NATO partners that a missile explosion in Poland was caused by a Ukrainian missile, allaying fears it had come from Russia.
The initial relief among investors was enough to encourage some inflows into stocks and commodities, but as concern persisted about the potential for Ukraine’s conflict to spill over into neighboring countries, risk assets struggled to gain upward momentum.
MSCI All-World Index (.MIWD00000PUS) Almost unchanged on the day, after falling as much as 0.2% overnight when news broke of the explosion that killed two people.
“The core belief is this isn’t going to cause any escalation. This is whatever it was, but it wasn’t an attack on Poland and Biden’s comments took the nerve out of him,” said Kate Jukes, a strategist at Societe Generale.
When the missile hit, NATO member Poland initially said a Russian-made missile was responsible and summoned Russia’s ambassador in Warsaw for an explanation after Moscow denied responsibility.
The dollar, which serves as a safe haven in times of geopolitical or market turmoil, rose as much as 0.7% overnight, before heading lower in European trade and was last down 0.3% against a basket of major currencies.
“The initial reaction was understandable, given that a deliberate attack on a NATO member would be a massive escalatory step,” said Jim Reid, a strategist at Deutsche Bank.
“It quickly became clear that this was unlikely to be a direct attack, and the above night comments indicated a rapid de-escalation.”
Biden said the United States and its allies in NATO were investigating the explosion, but preliminary information indicated that it may not have been caused by a missile fired from Russia.
US stock futures were higher, with S&P 500 e-minis and Nasdaq 100 futures gaining 0.1%.
The euro was last up 0.6% today at $1.0411, while the pound was nearly flat at $1.1865, after UK data showed that consumer inflation rose much more than expected in October.
With geopolitical tensions injecting some volatility into the broader markets, the 10-year Treasury yield was virtually unchanged on the day at 3.807%. On Tuesday, yields fell to their lowest in more than a month.
Gold rose 0.2% on the day to $1,776 an ounce, supported by dollar weakness, while crude oil rose 0.3% to $94.07 a barrel, after falling to an overnight low of $92.85.
Additional reporting by Xie Yu; Additional reporting by Ankur Banerjee. Editing by Edwina Gibbs, Edmund Klamann, and Simon Cameron-Moore
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