European stocks were on track for a second session of steep losses, US government bonds rallied and the euro slumped against the dollar after Russian forces seized a Ukrainian nuclear plant following another night of relentless bombardment.
The Stoxx 600 share index, which fell more than 2 per cent on Thursday, dropped a further 2.7 per cent by Friday afternoon in London, taking it almost 13 per cent lower for the year. Germany’s Xetra Dax fell 3.4 per cent and London’s FTSE 100 dropped 3.1 per cent.
The euro fell almost 1.5 per cent against the dollar to $1.09, dipping below $1.10 for the first time since May 2020.
The assault on the Zaporizhzhia plant prompted US President Joe Biden to urge an immediate ceasefire on the site of Europe’s largest nuclear facility in south-eastern Ukraine. A fire was extinguished at the plant early on Friday.
Nato on Friday discussed the potential of a no-fly zone in Ukraine but agreed that it should not be undertaken, the alliance’s secretary-general said.
Investors have been focused on the potential for further sanctions against Russia to disrupt supply chains, cause a sustained surge in commodity prices, push the eurozone economy into stagflation and hobble the US recovery from the coronavirus crisis. Now, many are also struggling to price in what has begun to feel like a relentless escalation of negative events.
“The market is struggling to very quickly process the new information that is constantly coming out about the escalating conflict,” said Georgina Taylor, multi-asset fund manager at Invesco.
“Initially the effects on certain sectors’ cost bases and on supply chains was the focus but I do worry it’s going further beyond that now.”
The dollar index added 0.8 per cent.
In government debt markets, the yield on the 10-year US Treasury note fell 0.08 percentage points to 1.76 per cent as its price rose significantly. Germany’s equivalent Bund yield fell 0.08 percentage points to minus 0.05 per cent.
Futures markets implied Wall Street’s S&P 500 would drop almost 1 per cent at the New York open and the technology-heavy Nasdaq 100 would lose 0.9 per cent.
Brent crude jumped as much as 3.4 per cent to $114.23 on Friday. The international oil benchmark on Thursday hit its highest level since 2012.
An S&P barometer of raw materials prices is on track for its biggest weekly rise in 50 years, reflecting Russia and Ukraine’s strategic importance as producers, particularly for Europe. The annual pace of eurozone inflation is forecast to top 6 per cent this month.
As the impact of the war reverberates through markets, investors are debating whether the US and European central banks will reverse plans to raise borrowing costs from pandemic-era record lows.
Before Russia invaded Ukraine, the US Federal Reserve had been expected to increase interest rates more than seven times this year. Derivatives markets are now pricing fewer than six quarter-point rises by December.
Non-farm payrolls data released on Friday showed US employers added a much larger than expected 678,000 jobs in February. But wages rose by a slower than expected annual rate of 5.1 per cent, potentially removing some pressure on the Fed to prevent an inflationary spiral of wages and prices.
In Asia-Pacific, Hong Kong’s Hang Seng share index closed 2.5 per cent lower and Tokyo’s Nikkei 225 lost 2.2 per cent.
