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Stocks tumbled on Friday, with European indexes reaching their lowest point in about a year, as fighting intensified in Ukraine and government officials accused Russia of shelling Europe’s largest nuclear power facility, starting a fire that was later extinguished.
On Wall Street, the S&P 500 fell 0.8 percent even after a stronger than expected jobs report for February. Treasury bonds rose as investors sought safe investments; the yield on 10-year notes fell about 11 basis points, to about 1.74 percent.
Shares in Europe were hit harder, with the Stoxx Europe 600 falling 3.6 percent to its lowest since March 2021. Germany’s DAX slid 4.4 percent.
Stocks have been zigzagging for the last several weeks as tension in Ukraine escalated and as sanctions on Russia, imposed in the days since its invasion of Ukraine, have mounted. Several large explosions shook Ukraine’s capital, Kyiv, on Friday, and thousands of people were rushing to escape the conflict.
The financial penalties from Western countries have included freezing hundreds of billions of dollars of Russian assets and making many types of foreign investment in the country exceedingly difficult. A series of Western companies have also pulled away from Russia: Apple, Ikea and TJX, the owner of T.J. Maxx and Marshalls, said they halted business operations there. Energy companies, including TotalEnergies, BP and Shell, have also said they would back away from their oil ventures with the country.
The financial impact has been most evident in European markets and global commodities. Germany’s DAX index lost more than 10 percent this week and is down nearly 20 percent from its early January high. Investors took $6.7 billion out of European stocks this week, Bank of America said. That’s the biggest outflow since at least 2004, when the bank began tracking the data.
Wall Street has fared better but the S&P 500 ended the week with a decline of 1.3 percent.
In Moscow, the Russian stock exchange remained closed for the fifth consecutive day on Friday. Russian stocks traded in other countries have collapsed, and in some places trading in them has been halted outright. On Friday, the New York Stock Exchange said it halted trading in three Russia-focused exchange traded funds, including the MSCI Russia ETF.
Russia and Ukraine are important producers of several essential commodities, so the escalating conflict has sent prices soaring as buyers feared supply shortages. The price of Brent crude oil gained about 21 percent this week and was trading at about $118 a barrel on Friday; palladium, a key metal used in the auto industry, rose about 25 percent; and wheat surged by more than 40 percent.
“The markets seem to be stuck between the hammer and the anvil with higher inflation, impending rate hikes and escalating fears of the Russia and Ukraine conflict,” said Anu Gaggar, global investment strategist for Commonwealth Financial Network. “Markets are still trying to assess the ripple effects of this conflict on the economy, which is causing greater volatility.”
In the United States, the average price for a gallon of regular gasoline jumped 11 cents on Friday, to $3.83, the biggest one-day rise since 2005, when Hurricane Katrina slammed into oil fields in the Gulf of Mexico and shut down refineries. Over the last week, the price rose 26 cents, from $3.57 a gallon, as traders feared that Russian oil exports would be blocked. A year ago, the price was $2.75.
The Russia-Ukraine War and the Global Economy
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Gas supplies. Europe gets nearly 40 percent of its natural gas from Russia, and it is likely to be walloped with higher heating bills. Natural gas reserves are running low, and European leaders have accused Russia’s president, Vladimir V. Putin, of reducing supplies to gain a political edge.
Shortages of essential metals. The price of palladium, used in automotive exhaust systems and mobile phones, has been soaring amid fears that Russia, the world’s largest exporter of the metal, could be cut off from global markets. The price of nickel, another key Russian export, has also been rising.
Financial turmoil. Global banks are bracing for the effects of sanctions intended to restrict Russia’s access to foreign capital and limit its ability to process payments in dollars, euros and other currencies crucial for trade. Banks are also on alert for retaliatory cyberattacks by Russia.
The release of a robust employment number for the U.S. wasn’t enough to stop the selling on Friday. The government said U.S. employers added 678,000 job last month, a continuation of the rapid rebound in the labor market. The report also showed that the unemployment rate fell to 3.8 percent.
The report comes as the Federal Reserve has been preparing to pull back on its economic support and raise interest rates this year in an effort to tame inflation. February’s jobs report also showed that wage growth came in flat after a series of brisk increases, which is good news for the Fed and economists who are concerned about the start of an inflationary spiral in which wage and price increases push each other higher.
Between the flat number on wage growth and the uncertainty over the ripple effects of the Ukraine conflict, “there is less pressure on the Fed to front-load rate hikes,” said Ms. Gaggar. The central bank’s chair, Jerome H. Powell, has said that interest rates will rise by a quarter point later this month.
The approach the Fed could take moving forward was echoed by Charles Evans, president of the Federal Reserve Bank of Chicago, on CNBC on Friday. Mr. Evans said that the jobs report “doesn’t really change anything that Chair Powell was sort of pre-positioning the Fed for, the other day.”
Next week, investors will be monitoring the release of the Consumer Price Index, a closely watched inflation gauge released by the Department of Labor. January’s exceeded analysts forecasts and showed that prices jumped 7.5 percent over the year and 0.6 percent from the prior month.
Jeanna Smialek and Clifford Krauss contributed reporting.