Stock markets fell across Europe and on Wall Street in response to the escalating conflict in Ukraine and its potential to choke off supplies of vital commodities.
After Russian forces subjected the Ukrainian port of Mariupol to relentless bombardment on Thursday, Europe’s regional Stoxx 600 index dropped 1.6 per cent, with heavy falls across companies most affected by anticipated higher costs of oil, metals and foodstuffs produced in Russia and Ukraine.
The Stoxx sub-index of utilities groups dropped 3.3 per cent while its tech subsector fell 1.7 per cent to reflect concerns about potential disruption to semiconductor supply chains that involve Ukrainian raw materials. Wall Street’s tech heavy Nasdaq Composite index dropped 1.1 per cent while the broader based S&P 500 fell 0.5 per cent.
“We haven’t even seen major disruptions to supply and demand yet,” said Grace Peters, head of European investment strategy at JPMorgan’s private bank. “But a risk premium has come in to reflect the potential of such disruptions in future and that is what is moving markets today.”
Germany’s Xetra Dax dropped 1.5 per cent and London’s FTSE 100 fell 2.2 per cent. Meanwhile, France’s Cac 40 lost 0.9 per cent. The broader Stoxx is down about 10 per cent so far this year.
Shares in airline Deutsche Lufthansa fell 7.5 per cent, Spanish electricity provider Iberdrola lost 5 per cent and German power group RWE lost 7 per cent.
Investors on Thursday were also assessing the chances of the US and European central banks rowing back earlier plans to end pandemic-era monetary support to safeguard economies from the fallout from Russian sanctions and booming commodities prices.
Wall Street stocks had rallied on Wednesday after Federal Reserve chair Jay Powell said that while the US central bank was prepared to push ahead with rate increases, “we will proceed carefully as we learn more about the implications of the Ukraine war for the economy”.
“It’s not the kind of economic slowdown we’ve had in recent cycles,” said Nadège Dufossé, head of cross-asset strategy at Candriam. “It’s a slowdown with high inflation, which is just a very complicated situation for central banks to manage.”
European bond prices softened as the potential for soaring commodity prices to elevate record-high eurozone inflation reduced the appeal of the fixed interest-paying securities.
The yield on Germany’s 10-year Bund, a barometer for eurozone debt costs, rose 0.05 percentage points to 0.06 per cent, having fallen below zero earlier this week. Italy’s equivalent bond yield added almost 0.1 percentage points to 1.63 per cent as the price of the debt instrument fell significantly.
In Asia, Hong Kong’s Hang Seng index closed 0.6 per cent higher and Japan’s Topix added 1.2 per cent, mirroring moves in the US overnight.