Driven by bottom-hunting funds, U.S. stocks, which had the biggest drop in nearly two years, recovered all their lost ground amazingly. Geo tensions and the Fed's policy actions to tackle inflation have roiled markets. Retail, industrial and energy stocks led the S&P 500 late in the session, which fell as much as 4%. The Cboe Volatility Index surged as much as 35% to its biggest since October 2020. Interest rate markets remained firm despite a decline in global risk assets and heightened geopolitical risks. The Fed is expected to raise interest rates. The swap market shows that the Federal Reserve is expected to raise interest rates by 25 basis points in March, and the market expects to raise interest rates by nearly a full percentage point in 2022.

Despite a drop in global risk assets and heightened geopolitical risks, interest rate markets remain firmly expecting the Federal Reserve to raise interest rates. Sharp losses in U.S. stocks and other risky assets have historically put policymakers on hold, but this time, bets on a rate hike this year remain unwavering, even amid the current tech-led sell-off. The swap market shows that the Federal Reserve is expected to raise interest rates by 25 basis points in March, and the market expects to raise interest rates by nearly a full percentage point in 2022.

U.S. business activity came to a near standstill in early January, with lingering capacity constraints and a fresh wave of the virus also curbing demand. Data from IHS Markit on Monday showed the preliminary December composite purchasing managers' index slipped 6.2 points to an 18-month low of 50.8. Figures above 50 suggest expansion. The services sector indicator also fell to its lowest level since July 2020, with labour shortages and employee absenteeism weighing on services sector activity. The decline in the manufacturing index was more modest in comparison, but the index remained at a new low since October 2020, with supply chains still sluggish and output constrained. "Output is affected much more by omicron than demand, and the strong increase in new business inflows suggests that growth will resume once restrictions are eased," said Chris Williamson, chief business economist at IHS Markit.

Bitcoin snapped a five-day losing streak on Monday, and a strong late rally in U.S. stocks showed investors remained somewhat risk-averse after the recent rout in global markets. Bitcoin was up as much as 6.2 percent at $37,548 as of 4:36 p.m. New York time. Bitcoin fell as low as $32,970 earlier on Monday, its lowest level since July last year. Ether rose about 1.7 percent to $2,463 after hitting its lowest intraday level since July.

Ahead of the Federal Reserve meeting this week, speculators unwinded their long dollar positions at the fastest pace in more than 18 months, and those bulls missed out on a rising dollar. According to the latest data from the Commodity Futures Trading Commission (CFTC), speculative net long positions in the U.S. dollar against major currencies fell by the most since June 2020. However, the dollar has climbed recently, with economists expecting the Federal Reserve to signal a rate hike in March and a shrinking of its balance sheet later this year at its meeting on interest rates that ends on Wednesday.

Russia's central bank said it would stop buying strong currencies to ease pressure on the rouble, which has fallen on tensions in Ukraine. Russian policymakers are suspending foreign currency purchases on the open market to "reduce financial market volatility," according to a statement on the website. As part of Russia's fiscal rules, the central bank trades for the Treasury to reduce the economy's exposure to oil price volatility.

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