By STAN CHOE and ALEX VEIGA, AP Business Writers
NEW YORK (AP) — Markets trembled on Monday amid concerns about 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 of Ukraine. Stocks fell, rose and then fell again, as investors crowded into bonds looking for safety and the value of the Russian ruble plunged to a record low.
The S&P 500 was down 1.3% in afternoon trade after Western allies moved over the weekend to block some Russian banks from a key global payments system. The US Treasury Department also announced new and powerful sanctions against the Russian central bank.
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.
Stocks on Wall Street pared losses throughout the morning, at one point returning to modest gains, after big tech stocks and others that benefit most from low interest rates rallied. The war in Ukraine is raising expectations that the Federal Reserve may need to slow down its campaign to raise interest rates in order to fight inflation.
Other markets were more fearful of the growing antagonism between Russia and the United States and its allies.
Oil prices on both sides of the Atlantic have soared more than 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 0.12 percentage points to 1.86%, at the rate of one of its biggest declines since the omicron coronavirus variant first rattled investors. Gold rose 0.7%.
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.
“Things are fluid right now and investors are looking for the next shoe to drop,” said Barry Bannister, chief equity strategist at Stifel.
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 3.9%.
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 0.7%, the French CAC 40 fell 1.4% and the FTSE 100 in London lost 0.4%.
In the United States, the Dow Jones Industrial Average was down 581 points, or 1.7%, at 33,481 as of 2:11 p.m. EST. The Nasdaq composite was 1% lower.
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.
Given the uncertainty surrounding Ukraine, investors have sharply reduced bets that the Fed will raise rates in March by double the usual increase. Traders now only expect a 10.4% chance of that, according to CME Group. A day earlier, they assessed a probability of 24%.
“Central banks are expected to take a somewhat slower and more cautious approach following this crisis, which provides a positive offset for risky assets,” said Jonas Golterman, senior global markets economist. at Capital Economics, in an online statement. Monday briefing.
This has helped high-growth tech stocks first and others that have soared in recent years, largely due to low interest rates. Tesla jumped 6%, even as big tech stocks like Nvidia went from losses to gains and back again. The chipmaker fell 1.3%.
Tesla also benefited from higher oil prices, as did other electric vehicle makers, solar energy companies and oil producers. S&P 500 energy stocks jumped 1%, the only sector in the index to post a gain.
Defense-related businesses also advanced, with Lockheed Martin up 4.2%.
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. The Russian currency at one point dipped below 0.9 cents before rising to a shadow above one cent, albeit down almost 15%.
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.
AP Business Writers Damian J. Troise, Kelvin Chan, and Yuri Kageyama contributed. Veiga reported from Los Angeles.
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