NEW YORK – Markets shuddered Thursday and whipsawed after Russia’s invasion of Ukraine threatened to push high inflation squeezing the global economy even higher.
On Wall Street, the S&P 500 tumbled 2.6% at the open of trading before erasing the drop and flipping to a gain of 0.6%. The heaviest losses hit stocks in Europe, after officials called Russia’s nearby moves a “brutal act of war,” with the German DAX down 4%.
Beyond its tragic human toll, the conflict looked set to send prices even higher at gasoline pumps and grocery stores around the world. Russia and Ukraine are major producers not only of energy but also grains and various other commodities.
Oil prices on both sides of the Atlantic briefly jumped above $ 100 per barrel to their highest levels since 2014. But they gave back much of their gains after Biden said the sanctions package is “specifically designed to allow energy payments to continue.” While he described the sanctions as severe, Ukrainian officials urged the US and West to go further and cut the Russians from a crucial financial payments system.
Afterward, the price of US oil settled at $ 92.81, up 71 cents for the day, but well below the $ 100.54 it had touched earlier in the day.
Wholesale prices rose for everything from heating oil to wheat to gasoline. As with stocks, the movements were more sharp in Europe than in the US because its economy is more closely tied to Russia and Ukraine. The spot price in Europe for natural gas jumped more than 50%.
Increases in energy and food prices could amplify worries about inflation, which in January hit its hottest level in the United States in a couple generations, and what the Federal Reserve will do in turn to rein it in.
The Fed looks certain to raise rates for the first time since 2018, with the only question being how quickly and how aggressively it will move, starting next month.
In the past, the Fed has sometimes delayed big policy decisions amid uncertainty about the Kosovo war and the US invasion of Iraq, for example, according to Goldman Sachs. But economists at the bank say they still expect the Fed to raise rates steadily at its upcoming meetings. The Ukraine tensions probably just make it less likely the Fed will start the process with a bigger-than-usual increase in rates, something some Fed officials recently suggested.
“The Fed may become more concerned about the impact on economic growth and will probably want to tread more cautiously,” said Kristina Hooper, chief global market strategist at Invesco.
The Fed was already saddled with the delicate task of raising interest rates enough to stamp out high inflation but not so much as to choke the economy into a recession. Strategists at Evercore ISI said that risk still remains, and has become even more complicated by the attack on Ukraine, but that it is “substantially greater in Europe relative to the US.”
Many investors also said that past global events, such as an invasion, have had only short-term effects on markets that last a few weeks or months.
Regardless, bond yields sank in the meantime around the world, a sign that investors were moving into things that may offer safer returns than stocks. The yield on the 10-year US Treasury fell to 1.96% from 1.97% late Wednesday, though it had been down more sharply earlier. Gold also continued its strong run on worries about Russia and Ukraine.
On Wall Street, worries about higher interest rates have delivered the heaviest hits on big technology stocks, a turnaround after those companies soared to lead Wall Street out of its coronavirus-caused plummet in 2020.
The Nasdaq composite, which is full of big tech stocks, was down as much as 3.4% Thursday and was at one point on track to close more than 20% below its record.
But it rallied back through the day and was recently up 2.4%. The Dow Jones Industrial Average was down 165 points, or 0.5%, at 32,966, as of 3:23 pm Eastern time.
The FTSE 100 in London fell 3.9% after Europe awakened to news of explosions in the Ukrainian capital of Kyiv, the major city of Kharkiv and other areas. The CAC 40 in Paris lost 3.8%.
Moscow’s stock exchange briefly suspended trading on all its markets on Thursday morning. After trading resumed, Russian indexes plunged by a third or more.
“How bad could this get? Well, how long is a piece of string, right? ” said Jonas Goltermann, senior global markets economist at Capital Economics. “There are not that many obvious examples of this type of shock to markets.”
AP Business Writers Damian J. Troise, Kelvin Chan, Christopher Rugaber and Joe McDonald contributed.