NEW YORK (AP) — Markets quivered Monday amid worries about how high oil prices will go and how badly the global economy will get hit after the U.S. and allies upped the financial pressure on Russia for its invasion of Ukraine. Stocks swung down and then up, investors herded into gold in search of safety and the value of the Russian ruble plunged to a record low.
The S&P 500 was 0.3% lower in midday trading, paring an earlier loss of 1.3%, after Western allies moved over the weekend to block some Russian banks from a key global payments system. The U.S. Treasury Department also announced new and powerful sanctions that could immobilize any assets of the Russian central bank in the United States or held by Americans.
The Biden administration said Germany, France, the UK, Italy, Japan, European Union and others will join the U.S. in hitting Russia’s central bank, which said the Moscow stock exchange would remain closed Monday.
Oil prices on both sides of the Atlantic climbed roughly 4% amid concerns about what will happen to crude supplies, because Russia is one of the world’s largest energy producers. That’s upping the pressure on the already high inflation squeezing households around the world.
In search of safer returns, investors plowed into U.S. government bonds, which drove the yield of the 10-year Treasury down about 0.10 percentage points to 1.87%, on pace for one of its sharpest drops since the omicron coronavirus variant first rattled investors. Gold rose 1.2%.
They’re just the latest sharp swings for markets, which were relaxing in relief just on Friday, in part on thoughts that sanctions against Russia weren’t as severe as they could have been. More sharp turns are likely in the hours and days ahead given all the uncertainty about the war.
The pressure on Russia isn’t coming only from governments. London-based energy giant BP said Sunday it would dump its investment in Rosneft, a Russian energy company. BP has held a nearly 20% stake in Rosneft since 2013, and its shares listed in London fell 4.4%.
European stocks broadly have fallen more sharply than their U.S. counterparts given how much more closely tied Europe’s economy is to Russia and Ukraine. Germany’s DAX dropped 0.9%, France’s CAC 40 fell 1.5% and the FTSE 100 in London lost 0.6%.
In the U.S., the Dow Jones Industrial Average was down 183 points, or 0.5%, at 33,875, as of 11:21 a.m. Eastern time. The Nasdaq composite was 0.5% higher after erasing an earlier loss of 1%.
Markets had already been on edge before Russia’s invasion, worried about upcoming hikes in interest rates by the Federal Reserve, which would be the first since 2018.
Fed Chair Jerome Powell is scheduled to testify before Congress later this week, where he could offer clues on the path for interest rates. A report on Friday will also show whether strength in the U.S. jobs market continued in February, which would give the Fed more leeway to raise rates.
The Fed is caught on a narrow tightrope, needing to raise rates enough to stamp out high inflation but not by so much as to choke the economy into a recession. Higher rates also put downward pressure on all kinds of investents from stocks to cryptocurrencies.
With Russia’s invasion of Ukraine, traders have been thinking the Fed may take it easier. They’ve sharply pared back bets that the Fed will raise rates in March by double the usual increase, now forecasting just a 7% chance of that. A day earlier, they were pricing in a 24% probability.
That’s helping high-growth tech stocks and others that benefit the most from low interest rates. Healthy gains for Teslsa, up 7.3%, and Nvidia, up 1.4%, were two of the biggest reasons the S&P 500 was able to pare its losses so sharply on Monday.
Financial analysts say wars and other such scary geopolitical events tend to have only a temporary effect on markets, perhaps lasting weeks or months. But in the moment, fear is nevertheless still higher.
Putin’s order that Russian nuclear weapons stand at increased readiness to launch ratcheted up tensions with Europe and the United States and revived dormant fears from the Cold War era.
The Russian central bank raised its key rate to 20% from 9.5% in a desperate attempt to shore up the plummeting ruble and prevent a run on banks. That brought a temporary reprieve for the Russian currency.
The ruble plunged at one point plunged below 0.9 cents before climbing back to a shade above a penny, though still down nearly 15%. At the start of the year, a ruble was worth 1.33 cents.
The ruble had plunged more than 30% after the move to block Russian banks from the SWIFT payments system. Among other things, the sanctions are meant to crimp the Russian central bank’s access to over $600 billion in reserves and hinder its ability to support the ruble.
A weaker ruble is expected to cause inflation to surge, potentially angering Russians whose budgets will be stretched by soaring prices. It will also add to strains across Russia’s financial systems.
