US stocks enter correction while oil nears $100 a barrel on Ukraine tensions

US stocks fell, with the S&P 500 index dropping into a correction, while oil prices neared $100 a barrel on Tuesday after Russian president Vladimir Putin ordered troops into eastern Ukraine.

The international crude oil benchmark Brent rose as high as $99.50 a barrel, the highest price since 2014, as traders weighed the possibility of disrupted supply from Russia. It later trimmed its gains to settle at $96.84 a barrel, up 3.5 per cent from the previous day.

The moves came after Putin directed his military to enter Ukraine’s rebel-held Donetsk and Luhansk regions, prompting Germany to halt the approval of the Nord Stream 2 natural gas pipeline and western powers to announce new sanctions against Moscow.

Wall Street’s benchmark S&P 500 ended the day down 1 per cent to its lowest closing level since late 2021, led lower by energy and consumer discretionary stocks. The decline on Tuesday brought the index into a correction, or 10 per cent below its recent peak in January.

The technology-heavy Nasdaq Composite fell 1.2 per cent. The Stoxx Europe 600 share gauge slipped as much as 1.9 per cent, before recovering to close 0.1 per cent higher.

Volatility indices showed traders expected equity markets to continue to swing on headlines concerning Ukraine, with the Vix gauge of expected volatility on the S&P 500 trading at 28.9.

European natural gas contracts rose by about a tenth to €79.50 per megawatt hour, ahead of the US and western allies launching a package of sanctions against Moscow later in the day.

Sanctions on Russian sovereign bonds will prohibit purchases of debt issued after March 1. Russian sovereign bonds issued in euros showed little reaction to the news, having already sold off earlier in the day.

European government bonds came under selling pressure on the prospect of higher gas prices in the bloc exacerbating record-high inflation levels.

“One of the very few definitive things we can see from this crisis is that energy prices are going higher,” said Bastien Drut, chief thematic macro strategist at CPR Asset Management. “Even if there is no further escalation in Ukraine, the main consequence is still going to be higher inflation.”

Line chart of Brent crude showing oil prices have surged on escalating Russia-Ukraine tensions

The FTSE All-World index of global shares has lost 3.3 per cent this month, taking its year-to-date loss to 8 per cent, as geopolitical tensions added to market jitters caused by the US and European central banks tightening monetary policy.

“An energy price shock amidst an aggressive central bank pivot focused on inflation could further dampen investor sentiment and [the] growth outlook,” strategists at JPMorgan wrote in a note to clients.

The US Federal Reserve is expected to embark on a string of interest rate rises from next month, after pinning borrowing costs close to zero two years ago. The European Central Bank, meanwhile, is set to phase out emergency government debt purchases this year.

The yield on the 10-year Treasury note was flat on the day at 1.93 per cent.

The yield on Germany’s 10-year Bund rose 0.04 percentage points to 0.24 per cent as the price of the benchmark European debt instrument fell. The UK’s 10-year gilt yield rose 0.06 percentage points to 1.47 per cent.

Russian assets were volatile on Tuesday. The rouble hit its weakest level against the dollar in more than 15 months early in the session, before paring losses to trade 0.7 per cent higher.

In Asia, Hong Kong’s Hang Seng index fell 2.7 per cent and Tokyo’s Nikkei 225 share index closed 1.7 per cent lower.


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