Stocks fall, oil and wheat prices jump after Ukraine attack

Stocks fell worldwide on Thursday after Russia’s attack of Ukraine sent fear coursing through markets and upped the pressure on the high inflation already squeezing the global economy.

On Wall Street, the S&P 500 fell 1.1 per cent at midday to continue its dismal start of the year, though it moderated its drop after starting the day down 2.6 per cent. The heaviest losses hit stocks in Europe, after officials called Russia’s nearby moves a “brutal act of war,” with the German DAX down 4.0 per cent.

Beyond its human toll, the conflict looks set to send prices spiralling even higher at gasolene pumps and grocery stores around the world. Russia and Ukraine are major producers not only of energy, but also grains and various other commodities. War could upend global supplies, as could sanctions brought by the United States and other allies.

Oil prices on both sides of the Atlantic jumped towards US$100 per barrel to their highest levels since 2014, up about 5 per cent. As with stocks, prices swung more sharply in Europe than in the United States because the continent’s economy is more closely tied to Russia and Ukraine.

Wholesale prices shot higher for everything from heating oil to wheat to gasoline. The spot price in Europe for natural gas jumped more than 50 per cent.

Increases in energy and food prices could amplify worries about inflation, which in January hit its hottest level in the United States in a couple generations, and what the Federal Reserve will do in turn to rein it in. The Fed looks certain to remove the super-low interest rates that investors love, which also helped catapult financial markets and the economy out of their coronavirus-caused plunge. The only question has been how quickly and how aggressively the Fed will move, starting next month.

Stocks pared their losses through Thursday morning as investors debated whether Russia’s aggression could make the Fed less aggressive about raising rates. In the past, it has delayed big policy decisions amid uncertainty about the Kosovo war and the US invasion of Iraq, for example, according to Goldman Sachs.

But economists at the bank say they still expect the Fed to raise rates steadily at their upcoming meetings. The Ukraine tensions probably just make it less likely the Fed will start the process off with a bigger-than-usual increase in rates, something that a couple Fed officials had suggested.

Many investors also said that past global events, such as an invasion, have had only short-term effects on markets that last a few weeks or months.

Regardless, bond yields sank in the meantime around the world, a sign that investors were scrambling into anything that may offer safer returns than stocks and other riskier bets. The yield on the 10-year US Treasury fell to 1.92 per cent from 1.97 per cent late on Wednesday. Gold also rallied and rose 0.8 per cent, continuing its strong run on worries about Russia and Ukraine.

On Wall Street, worries about higher interest rates have delivered the heaviest hits on big technology stocks, a turnaround after those companies soared to lead Wall Street out of its coronavirus-caused plummet in 2020.

The Nasdaq composite, which is full of big tech stocks, was down as much as 3.4 per cent Thursday, before it rallied back to trim its loss to just 0.2 per cent. During the morning, it was threatening to close more than 20 per cent below its record set in November, which would have been the first such tumble since 2020. The S&P 500 is now down 12.9 per cent from its record set early this year.

The Dow Jones Industrial Average fell 641 points, or 1.9 per cent, to 32,489, as of 12:47 p.m. Eastern time.

Financial markets are in a “flight to safety and may have to price in slower growth” due to high energy costs, Chris Turner and Francesco Pesole of ING said in a report.

In Brussels, the president of the European Commission said on Thursday the 27-nation European Union planned “massive and targeted sanctions” on Russia.

“We will hold President Putin accountable,” Ursula von der Leyen said.

The FTSE 100 in London fell 3.9 per cent after Europe awakened to news of explosions in the Ukrainian capital of Kyiv, the major city of Kharkiv and other areas. The CAC 40 in Paris lost 3.8 per cent.

Moscow’s stock exchange briefly suspended trading on all its markets on Thursday morning. After trading resumed, Russian indexes plunged by more than a third.

Some analysts expect the conflict to push investors out of many tech stocks, with the exception of the cybersecurity sector.

“Growing concern that massive cyberwarfare could be on the near-term horizon, which would certainly catalyse an increase in spending around preventing sophisticated Russian-based cyber attacks,” analysts with Wedbush Securities wrote in a note to clients.

Putin said Russia had to protect civilians in eastern Ukraine, a claim Washington had predicted he would make to justify an invasion.

US President Joe Biden denounced the attack as “unprovoked and unjustified” and said Moscow would be held accountable, which many took to mean Washington and its allies would impose additional sanctions. Putin accused them of ignoring Russia’s demand to prevent Ukraine from joining NATO and to offer Moscow security guarantees.

Washington, Britain, Japan and the EU earlier imposed sanctions on Russian banks, officials and business leaders. Additional options include barring Russia from the global system for bank transactions.

AP