NEW YORK CITY: Stocks worldwide tumbled on Thursday after Russia’s attack on Ukraine sparked market fear and threatened to push inflation further, which is squeezing the global economy.
On Wall Street, the S&P 500 fell 1.1 percent to continue the gloomy start of the year, although it softened after starting the day with a 2.6 percent drop. The heaviest losses hit European stocks, as the German DAX fell 4 percent after officials described Russia’s imminent moves as a brutal act of war.
Beyond the human damage, the conflict is likely to push prices higher at petrol pumps and grocery stores around the world. Russia and Ukraine are major producers not only of energy but also of grain and various other commodities. War could upset global supply, as could sanctions by the United States and other allies.
Oil prices on both sides of the Atlantic jumped nearly 5 percent to $100 a barrel or more, hitting their highest level since 2014. As with stocks, prices fluctuated more sharply in Europe than in the United States, as the continent’s economy is more closely tied to Russia and Ukraine.
Wholesale prices rose for everything from heating oil to wheat to gasoline. The spot price of natural gas in Europe rose more than 50 percent.
Increases in energy and food prices could raise concerns about inflation in the United States, which reached its highest level in several generations in January, and what the Federal Reserve will do to rein in it.
It looks like the Fed will remove the super-low interest rates that investors love and are helping to bail out financial markets and the economy from the coronavirus-induced slump. The only question was how quickly and how aggressively the Fed would move from next month.
Stocks trimmed losses Thursday as investors debated whether Russia’s aggression could make the Fed less aggressive in raising interest rates. In the past, for example, according to Goldman Sachs, it has sometimes delayed major policy decisions due to uncertainties about the Kosovo war and the US invasion of Iraq.
But economists at the bank say they expect the Fed to raise interest rates steadily at their next meeting. As some Fed officials have suggested recently, Ukraine tensions likely make the Fed less likely to start the process with a larger-than-normal rate hike.