Global stock markets slid lower on Tuesday as oil prices stayed near record highs and the prospect of a US ban on Russian oil imports fueled volatility and fears of stagflation.
Western sanctions have cut Russia off from international trade and financial markets since Russia invaded Ukraine on February 24.
US President Joe Biden’s administration is poised to move forward with an American ban on Russian oil imports even if European allies fail to do so, US sources have said.
Russia, which has described its actions in Ukraine as a “special operation,” warned that if the West halted oil imports over the invasion of Ukraine, prices could soar to $300 a barrel and shut down the main gas pipeline to Germany.
International oil benchmark Brent Crude, which briefly topped $139 a barrel in the previous session, rose 6.94% to $131.76 at 10:30 a.m. EST (1530 GMT).
The MSCI world stock index, which tracks stocks from 50 countries, fell 0.66% after hitting its lowest level since March 2021 in early Asian trade.
The STOXX 600 fell 0.46% on the day, erasing earlier gains, and after the S&P 500’s worst day since October 2020, Wall Street opened lower. The Dow Jones Industrial Average fell 0.42%, the S&P 500 fell 0.64% and the Nasdaq Composite fell 0.71%.
Solita Marcelli, UBS’s chief investment officer in Americas for wealth management, said last week’s rise in oil prices – the second-biggest rise in 30 years – is likely to continue and lead to continued market volatility.
“The war between Russia and Ukraine has pushed oil prices higher faster than we previously expected, but we continue to see a tight supply-demand balance for crude oil globally, even as hostilities end and the geopolitical risk premium associated with crude oil sinking,” said Mr. Marcelli.
U.S. crude rose 7.19% to $127.98, while safe-spot gold prices rose 2.83% to $2,054.62 an ounce.
The London Metal Exchange (LME) halted nickel trading on Tuesday after prices doubled to a record $100,000 a tonne in just hours, fueled by a race to cover short positions.
UBS Global Wealth Management recommended a neutral stance on equities, advising clients to hold commodities, energy stocks and the US dollar as a short-term portfolio hedge.
The rally in oil and other commodities has added to investors’ concerns about global inflation. This week’s data is expected to show that the US CPI rose a stratospheric 7.9% yoy in February, up from 7.5% in January.
The benchmark German government bond yield rose sharply, and an indicator of long-term inflation expectations in eurozone markets rose to its highest level since late 2013.
The 10-year US Treasury yield was 1.8559%.
The euro rose 0.24% to $1.0878 after taking a hit over the past week, falling 3% to its lowest level since mid-2020.
The dollar index fell 0.018%.