European stocks tumbled, commodities surged and the euro hit its weakest level against the dollar for almost two years after the US said it was discussing a ban on oil imports from Russia.
The Stoxx 600 share index, which dropped 7 per cent last week in its worst performance since March 2020, lost a further 3.3 per cent in early dealings on Monday, with similar falls for equities across the region and following sharp declines in Asia.
International oil benchmark Brent crude rose almost 18 per cent to $139.13 a barrel in early trading on Monday, its highest level since 2008, before paring gains to be up 7 per cent at $126.43.
Global financial markets have been particularly volatile since late February, when Russian president Vladimir Putin launched a full-scale invasion of Ukraine. The further ructions on Monday came as traders assessed the economic fallout for commodities from the two producer nations dropping out of global supply chains, in an environment of already high inflation that may hamper the ability of central banks to maintain loose monetary policy.
“While the market had assumed sanctions would be somewhat toothless, we now see the US administration will go to some lengths to punish Russia,” said Altaf Kassam, head of European investment strategy at State Street Global Advisers.
The US Federal Reserve is expected to raise interest rates about six times this year but has not yet initiated those rises, meaning borrowing costs remain at the record-low level the central bank pulled them down to in March 2020. The European Central Bank has maintained its main deposit rate at minus 0.5 per cent.
“It’s going to be hard for central banks to do what they have conventionally done, which is cut rates to backstop the market,” Kassam said.
US secretary of state Antony Blinken said on Sunday that Washington was in “very active discussions” with European allies. Nancy Pelosi, US House speaker, said Congress was “exploring” legislation to ban the import of Russian oil.
In Europe, Germany’s Xetra Dax fell 4 per cent, Spain’s Ibex share index lost 4.5 per cent and Italy’s FTSE MIB share gauge fell 4.5 per cent. The yield on Italy’s 10-year bond rose 0.04 percentage points 1.57 per cent as the debt instrument fell in price.
The spot gold price breached $2,000 for the first time since August 2020 in Asian trading as investors sought shelter from market risk in the haven asset. The dollar index, which measures the US currency against six others, hit its highest point since May 2020. The euro fell 0.4 per cent to $1.08, also its weakest level against the dollar since May 2020.
In Russia, the rouble weakened to as much as Rbs138.5 against the dollar, marking a fresh record low for the Russian currency. The currency had traded at about Rbs81 to the dollar a day prior to Russia’s invasion of Ukraine.
Hong Kong’s Hang Seng share index led falls in Asia, dropping 3.9 per cent and closing at its lowest level since 2016. Tokyo’s Nikkei 225 declined 2.9 per cent, its worst trading day since late January.
The prospect of expanded sanctions hitting Russian oil shipments has jolted global commodity markets already unsettled by the increasing difficulty of transacting with Russian providers. European natural gas futures rose more than 70 per cent on Monday morning to as much as €335 per megawatt hour, a new all-time high, before later trimming their gains. A year ago, the price was around €16.
Palladium, a key component of catalytic converters in cars, jumped as much as 5.4 per cent to a record high of more than $3,174 an ounce. Wheat futures rose 7 per cent to $12.94 a bushel.
