Stock Markets Fall as Ukraine Invasion Fears Rattle Investors

Europe's stock markets have fallen sharply on rising tensions over Russia's military buildup on Ukraine's border, although US shares avoided steep declines on hopes of a deal. Markets in London, Paris, and Frankfurt clawed back some early losses but were still trading lower in the afternoon. Travel and tourism shares were hit hard, and London-listed Russian mining company Evraz suffered a 30% fall. Market sentiment changed slightly after remarks by Russia's foreign minister. According to reports, Sergei Lavrov has suggested to Russia's President Vladimir Putin that diplomatic efforts should continue because there might be a chance of doing a deal with the West. That limited losses at the Wall Street open, with the Dow Jones falling 0.5% and S&P 500 down 0.1%, while the Nasdaq fell 0.4%. That was in contrast to European markets, which followed Asian shares sharply lower. London's FTSE 100 recouped some losses, but with two hours to go before the end of trading was still 1.75% lower. Germany Dax and France's Cac were 2% off. "The fact that the door has not been shut to further talks... is a good thing," said Patrick O'Hare, at Briefing.com. "Hence, the negativity seen earlier has dissipated some, yet there is still a major cloud of uncertainty hanging over the market." Oil initially rose sharply with Brent crude topping $95 (£70) per barrel, stoking fresh inflationary worries, although the price has eased back slightly. With oil demand high as global economies emerge from lockdown, there are fears a war or severe sanctions on Russia will cut supplies, sending the price above $100 a barrel, something not seen since 2014.

Inflation

"Just as the storm of Covid appeared to be receding, the growing expectation of an invasion of Ukraine is the fresh threat now unnerving investors, with confidence plunging in many parts of the world," said Hargreaves Lansdown analyst Susannah Streeter. She added: "With worries that inflation is already running far too hot, the possibility Russian troops could move across the border has led to another surge in the oil price. Energy markets are clearly on edge and if supplies are threatened there is a risk oil will shoot up even higher." Analysts at Capital Economics estimate war or sanctions could add to inflation in Europe, forcing central banks to lift interest rates faster and further. "Over the longer term, whether Russia ends up invading or not, this geopolitical flare-up is likely to speed up the process of Russia's decoupling from the West," Capital Economics said in a research note. Moscow has amassed an estimated 100,000 troops along Ukraine's border but denies any intent to invade. Despite this, more than a dozen countries have urged their citizens to leave Ukraine, with the US saying Moscow could begin an attack “at any time”.

 

Ali Yetgin