Stocks fall as rising oil prices fuel inflation fears

NEW YORK (Reuters) – Oil prices initially rose on Thursday as Ukraine’s war sparked a commodities rush that led to “stagflation” fears, while stock markets slumped as investors gauge the impact of the Federal Reserve’s plans to tighten monetary policy. .

The fresh surge in energy prices has heightened concerns about the European economic outlook, sending the euro to its lowest level in nearly six years against the British pound and consolidating near 21-month lows against the dollar.

Brent crude futures, the international oil standard, rose to within 16 cents from $120 a barrel before pulling back on hopes that the United States and Iran will soon agree on a nuclear deal that could add production to a severely under-supplied market.

Prices of aluminum, copper and nickel soared to new highs as widening sanctions imposed on Russia over its invasion of Ukraine threatened to further disrupt the flow of goods from one of the world’s major producers.

The jump in commodity prices has raised concerns about the potential for stagflation – when high inflation and stagnant production destabilize the economy and undermine jobs.

“Investors fear the Fed’s reaction to stagflation more than they fear stagflation itself,” said Kristina Huber, chief global market strategist at Invesco.

“We will see a flash of stagflation,” she said. “But the markets will be comfortable with that if they feel the Fed will be comfortable with that.”

Markets are volatile, prompting investors to try to discover a lot of the moving parts in one fell swoop, said Jeff Mortimer, director of investment strategy at BNY Mellon Wealth Management.

“Markets are trying to reassess what the Fed will do and its views on inflation,” he said. “For us, it’s how to deal with inflation that’s going to be six, nine, 12, 15, 18 months from now. That’s the really important question.”

US stocks initially rose, extending their rally on Wednesday after Powell watered down widely held expectations of a 50 basis point interest rate hike when policymakers meet in two weeks.

But stocks later fell after Powell told a Senate committee on the second day of his testimony to Congress that Russia’s war in Ukraine could hurt the US economy from rising prices to weak spending and investment. Read more

Dow Jones Industrial Average (.DJI) The S&P 500 Index is down 0.29%. (.SPX) Lost 0.53% and the Nasdaq Composite Index (nineteenth) It decreased by 1.56%.

In Europe, the pan-region STOXX 600 index (.stoxx) It fell 2.01%, while the MSCI gauge of stocks worldwide (.MIWD00000PUS) It closed down 0.61%.

US and German government bond yields fell as investors awaited a possible monetary tightening. Money markets in Europe are now pricing in a 95% chance of a 30 basis point interest rate hike from the European Central Bank by the end of the year.

The yield on German 10-year government bonds, the benchmark for mass, rose 0.2 basis points to 0.039%.

The yield on the 10-year Treasury fell 1.3 basis points to 1.825% as US and other sovereign bond prices fell as investors assess the impact of the Federal Reserve, European Central Bank and other central banks raising interest rates to tame inflation.

Everything from coal to natural gas and aluminum is on the rise as Western countries tighten sanctions on Russia in the wake of its invasion of Ukraine. Read more

The three-month price of nickel on the London Metal Exchange (LME) rose to its highest level since April 2011, and the LME aluminum index rose 5% after hitting a record $3,755 a ton.

Oil markets have been volatile as investors anticipate disruption to global flows due to sanctions against Russia. Prices fell amid signs of progress toward removing remaining problems impeding the revival of the 2015 Iran nuclear deal. Read more

The price of US crude settled at $2.93 at $107.67 a barrel, while Brent crude fell $2.47 to settle at $110.46.

US gold futures settled 0.7% higher at $1,935.90 an ounce.

MSCI added to Russia’s financial isolation by deciding to move the country out of its emerging market index, while FTSE Russell said Russia would be removed from all of its indexes.

Fitch cut Russia’s sovereign credit rating by six notches to “junk”, saying it was not sure the country could service its debt, and Moody’s quickly followed suit. Read more

The ruble pared some of its losses after falling to new records against the dollar and the euro. The currency was flat at the end of the day on the Moscow Stock Exchange at 106.01 after hitting an all-time low of 118.35 in weak and choppy trading.

In Asia, the rush to commodities lifted resource-rich Australian stocks (.AXJO) 0.49%.

Overnight in Asia, Japan’s Nikkei (.N225) It managed to post a gain of 0.7%, while the broadest MSCI Asia Pacific Index outside Japan (MIAPJ0000PUS.) It rose 0.39%.

In the currency markets, the dollar index was up 0.327%, with the euro down 0.52% to $1.1063.

The yen strengthened 0.07% to 115.44 per dollar.

Additional reporting by Herbert Lash, Tommy Wilkes in London and Wayne Cole in Sydney; Editing by Jane Merriman, Bernadette Baum and Jonathan Otis

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