Uncertainty slaps Wall Street and oil up after Russian sanctions
Markets trembled on Monday amid concerns over rising oil prices and the severity of the impact on the global economy after the United States and its allies increased financial pressure on Russia for its invasion from Ukraine. Stocks fell and then rose, investors rushed to gold for safety and the value of the Russian ruble plunged to a record low.
The S&P 500 was down 0.3% at midday, erasing an earlier loss of 1.3%, after Western allies acted over the weekend to block some Russian banks from a key global payments system. . The US Treasury Department also announced powerful new sanctions that could tie up all Russian central bank assets in the US or held by Americans.
The Biden administration has said Germany, France, the United Kingdom, Italy, Japan, the European Union and others will join the United States in hitting the Russian central bank, which said that the Moscow Stock Exchange would remain closed on Monday.
Oil prices on both sides of the Atlantic have soared around 4% amid concerns over what will happen to crude supplies as Russia is one of the world’s largest energy producers . This increases pressure on the already high inflation that is squeezing households around the world.
Seeking safer yields, investors invested in US government bonds, causing the 10-year Treasury yield to fall about 0.10 percentage points to 1.87%, at the rate of one of its biggest declines since the omicron coronavirus variant first rattled investors. Gold rose 1.2%.
It’s just the latest wild swings in the markets, which eased off last Friday, partly on the belief that the sanctions against Russia weren’t as severe as they could have been. Sharper turns are likely in the hours and days ahead given all the uncertainty surrounding the war.
The pressure on Russia does not only come from governments. London-based energy giant BP said on Sunday it would divest its investment in Rosneft, a Russian energy company. BP has held a nearly 20% stake in Rosneft since 2013, and its London-listed shares fell 4.4%.
Overall, European stocks fell more sharply than their US counterparts given that the European economy is much more closely tied to Russia and Ukraine. The German DAX fell 0.9%, the French CAC 40 fell 1.5% and the FTSE 100 in London lost 0.6%.
In the United States, the Dow Jones Industrial Average was down 183 points, or 0.5%, at 33,875 as of 11:21 a.m. EST. The Nasdaq composite was 0.5% higher after erasing an earlier loss of 1%.
Markets were already on edge before the Russian invasion, worried about upcoming interest rate hikes by the Federal Reserve, which would be the first since 2018.
Fed Chairman Jerome Powell is due to testify before Congress later this week, where he could offer clues about the path of interest rates. A report on Friday will also show whether the strength in the US job market continued in February, which would give the Fed more leeway to raise rates.
The Fed is caught on a tight rope, having to raise rates enough to eradicate high inflation, but not enough to suffocate the economy into a recession. Higher rates also put downward pressure on all kinds of investments, from stocks to cryptocurrencies.
With Russia’s invasion of Ukraine, traders thought the Fed could go easier. They sharply reduced bets that the Fed would raise rates in March by double the usual increase, now forecasting only a 7% chance. A day earlier, they assessed a probability of 24%.
This helps high-growth tech stocks and others that benefit the most from low interest rates. Healthy gains for Tesla, up 7.3%, and Nvidia, up 1.4%, were two of the main reasons the S&P 500 was able to cut losses so sharply on Monday.
Financial analysts say wars and other scary geopolitical events tend to have only a temporary effect on markets, lasting for weeks or months. But at the moment, the fear is nevertheless even higher.
Putin’s order that Russian nuclear weapons be increasingly ready to launch has heightened tensions with Europe and the United States and reignited latent Cold War-era fears.
Russia’s central bank raised its benchmark rate from 9.5% to 20% in a desperate attempt to prop up the ruble’s slide and stave off a run on the banks. This brought a temporary reprieve to the Russian currency.
The ruble at one point dipped below 0.9 cents before rising to a shade above a penny, although it is still down almost 15%. At the beginning of the year, one ruble was worth 1.33 cents.
The ruble plunged more than 30% after the decision to block Russian banks from the SWIFT payment system. Among other things, the sanctions aim to restrict the Russian central bank’s access to more than $600 billion in reserves and hamper its ability to support the rouble.
A weaker ruble is expected to cause inflation to spike, which could anger Russians whose budgets will be strained by soaring prices. It will also add to strains in Russian financial systems.
AP Business Writer Yuri Kageyama contributed.