(Bloomberg) — Major stock markets from Europe to Asia are heading for bear markets — falling more than 20% from highs — amid fears of an inflation shock as crude oil soared on the prospect of a ban on Russian supplies.
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Europe’s Stoxx 600 dropped more than 3% on Monday, while U.S. equity index futures and an Asian share index declined. Energy stocks surged as Brent crude jumped as high as $139 a barrel before trading closer to $130. European gas, palladium and copper hit all-time highs.
The Biden administration is considering whether to ban the import of Russian oil and energy products, a move that could add to economic pressure as more companies pull out of the country in response to Moscow’s invasion of Ukraine. High energy prices threaten to stall global growth, a risk that is sending tremors across markets.
Commodities from grains, metals have also surged on concerns of chaos in raw-material flows due to the invasion and sanctions on Russia that are turning the resources powerhouse into a global pariah. Commodity-linked currencies like the Australian dollar strengthened.
The euro sank — at one point dropping below parity against the Swiss franc — on concerns about the economic outlook for Europe, which relies on Russian energy. Treasuries and the dollar advanced, with the U.S. 10-year Treasury yield falling to about 1.72%. Gold momentarily touched $2,000 an ounce.
Traders piled into options that oil could surge even further after rising to the highest since 2008, with some even placing low-cost bets that futures will rise above $200 before the end of March.
The global economy was already struggling with high inflation due to the pandemic. The Federal Reserve and other key central banks now face the tricky task of tightening monetary policy to contain the cost of living without upending economic expansion or roiling risky assets.
“For the U.S. economy, we now see stagflation, with persistently higher inflation and less economic growth than expected before the war,” Ed Yardeni, president of Yardeni Research, wrote in a note. “For stock investors, we think 2022 will continue to be one of this bull market’s toughest years.”
Worries about the war overshadowed China’s signal that more stimulus is on the cards after it set an economic growth target that topped forecasts.
Netflix, TikTok
In Russia, President Vladimir Putin signed a decree allowing the government and companies to pay foreign creditors in rubles, seeking to stave off defaults while capital controls remain in place.
Sanctions will determine if international investors are able to collect payments, the Finance Ministry said. Every eastern European currency has slid against the dollar in the past week, led by losses in the ruble.
More businesses pulled back on their operations in Russia, including streaming giant Netflix Inc. and social-media service TikTok, which is owned by China-based ByteDance Ltd.
The Swiss franc, a bolthole in times of stress, retreated against the dollar after a governing board member of the Swiss National Bank said it’s ready to intervene to tackle rapid strengthening.
Central banks face “an exogenous stagflationary shock they cannot do much about,” wrote Silvia Dall’Angelo, senior economist at Federated Hermes.
Here are some key events this week:
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Apple new product event, Tuesday
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EIA crude oil inventory report, Wednesday
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China aggregate financing, PPI, CPI, money supply, new yuan loans, Wednesday
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Reserve Bank of Australia Governor Philip Lowe speaks, Wednesday and Friday
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European Central Bank President Christine Lagarde briefing after policy meeting, Thursday
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U.S. CPI, initial jobless claims, Thursday
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 fell 3.2% as of 9 a.m. London time
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Futures on the S&P 500 fell 1.5%
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Futures on the Nasdaq 100 fell 1.7%
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Futures on the Dow Jones Industrial Average fell 1.4%
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The MSCI Asia Pacific Index fell 1.7%
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The MSCI Emerging Markets Index fell 2.4%
Currencies
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The Bloomberg Dollar Spot Index rose 0.5%
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The euro fell 0.6% to $1.0864
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The Japanese yen fell 0.1% to 114.95 per dollar
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The offshore yuan was little changed at 6.3235 per dollar
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The British pound fell 0.5% to $1.3170
Bonds
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The yield on 10-year Treasuries declined one basis point to 1.72%
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Germany’s 10-year yield was little changed at -0.07%
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Britain’s 10-year yield advanced one basis point to 1.22%
Commodities
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Brent crude rose 7.8% to $127.33 a barrel
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Spot gold rose 1.3% to $1,996.97 an ounce
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