Global stocks buckle as disquiet holds sway

London — European stocks sagged and oil jumped back above $100 a barrel on Tuesday as markets struggled with deep uncertainty caused by Russia’s invasion of Ukraine, though the rouble steadied as Moscow scrambled support for its beleaguered markets.

Russia’s stock markets remained suspended and some bond-trading platforms were no longer displaying prices, but dealing in the major financial centres in Europe and in Asia overnight was orderly, albeit jittery.

Losses for the pan-European Stoxx 600 were starting to mount again, with the index down 1.31% in the midafternoon session and Wall Street was down about 1% in morning trade.

There were been gains for mining and oil & gas stocks but even those had soured. Bank stocks slumped 4% as investors sensed that interest rate hikes might now be delayed.

“Assuming no rapid resolution to this conflict, we fear that global GDP could be reduced by 0.5%-1.0%,” said Paul Jackson, global head of asset allocation research at Invesco. “That’s enough to aggravate the ongoing slowdown but not enough to produce recession.” But Jackson cautioned that some parts of Europe could experience recession and that inflation was also likely to stay higher for longer.

Talks between Kyiv and Moscow on Monday ended with no agreement except to keep talking, and nerves were jangling as a huge Russian armoured column bore down on Kyiv on Tuesday after lethal shelling of civilian areas in Kharkiv, Ukraine’s second-largest city.

On energy markets, Brent crude futures were up $4.51, or 4.6%, to $102.75 a barrel. That was just below a seven-year high of $105.79 recorded after Moscow attacked Ukraine last week.

High energy

European natural gas prices leapt nearly 15% too. Oil and gas prices are up nearly 60% since fears of an invasion of Ukraine began to escalate in November.

“The fragile situation in Ukraine and financial and energy sanctions against Russia will keep the energy crisis stoked and oil well above $100 per barrel in the near term and even higher if the conflict escalates further,” Louise Dickson, senior oil market analyst from Rystad Energy, wrote in a note.

The sense that the war and higher energy prices could slow the global economy meant eurozone bond yields continued to fall as traders further reduced their bets on rate hikes from the European Central Bank this year.

Benchmark 10-year US Treasury yields were sitting at 1.8% in European trading having been above 2% less than two weeks ago, while the euro resumed its decline in the currency market.

Russia’s rouble appeared to be stabilising after plunging as much as 30% to a record 120/$ after Western countries imposed the most far-reaching sanctions on Russia.

Those measures include cutting its top banks from the SWIFT international financial network and sanctioning its central bank in a bid to limit Moscow’s ability to deploy its $630bn of foreign reserves.

Russia responded on Tuesday by temporarily stopping foreign investors from selling Russian assets to ensure they take a “considered decision” Prime Minister Mikhail Mishustin said.

Wealth fund

Russia’s huge sovereign wealth fund will also be pressed into action, spending as much as 1-trillion roubles ($10.3bn) to buy shares in Russian companies, a source close to the government said.

Sanctions mean that the big global banks are now reluctant to trade with Russian banks and vice versa, which means there are now effectively two different rouble currency markets — one in Russia and one internationally.

Traders in London were quoting the rouble at between 101/$ and 105/$, though it had been around 94/$, according to some local market prices.

More broadly, currency market volatility is at its highest since late 2020, as measured by a Deutsche Bank index and the rouble is down almost 30% from its best levels this year.

Reuters