LONDON, UK – Geopolitical tensions sent oil prices climbing and weighed on equities on Monday as investors also continued to worry about prospects for interest rate cuts amid stubbornly-high inflation.
“Heightened tensions between Ukraine and Russia have brought a halt to the rally in equity markets seen last week,” said Russ Mould, investment director at AJ Bell.
“Investors were nervously watching proceedings from the sidelines, particularly as oil prices crept up once again.”
Moscow has escalated its aerial attacks on Kyiv, targeting key infrastructure in the wake of Ukrainian attacks on Russian oil facilities.
Russia is a key producer of oil, while the Gaza-Israel war has given rise to worries about Middle Eastern crude supplies.
Adding to the complex geopolitical landscape, the Islamic State group has claimed responsibility for the attack on a Moscow concert hall on Friday that left at least 137 people dead.
The Kremlin refused to comment on Monday on the Islamic State group’s links to the massacre.
Oil prices are “a touch firmer this morning as traders react to the terrorist attack in Moscow over the weekend, amid uncertainty over who Russia will finally blame, and how they will ultimately react,” said market analyst David Morrison at Trade Nation.
He said Russia’s insinuations of Ukraine involvement in the Moscow attack “serves to heighten tensions in the two-year long war which has intensified as both sides fire missiles at each other, with energy infrastructure now a clear target.”
Oil prices gained further as the trading day continued, with Brent up 1.5 percent and WTI 1.7 percent.
Wall Street’s main stock indices dipped in afternoon trading, with higher US government bond yields also providing headwinds for equities.
European shares recovered somewhat in afternoon trading, ending mixed including Frankfurt’s DAX adding 0.3 percent to set a new record.
With stock markets on both sides of the Atlantic near record highs, market analyst Chris Beauchamp at IG put difference down to the lower valuation of European stocks and investment funds taking advantage of the situation.
“European stocks are less demanding on a valuation basis, and with inflows picking up this is helping European stocks to hold these elevated levels,” he told AFP.
Wall Street was also being weighed down by shares in tech companies Apple, Facebook-owner Meta and Google-owner Alphabet being subject to probes under Europe’s new digital law that could lead to big fines.
Meanwhile shares in Boeing climbed 1.6 percent as trading got underway in New York after the company announced Monday that CEO Dave Calhoun would leave his post as the aviation giant faces increased scrutiny after a series of safety incidents and manufacturing issues.
Susannah Streeter at Hargreaves Lansdown said the gain paled in comparison to the 25 percent drop in Boeing shares since the start of the year.
“It’s not surprising that there appears to be some scepticism about the changes, given previous executive merry go-rounds appear to have made no difference and the company has slid into further chaos,” she said.
Inflation
Stock markets got a boost last week after Federal Reserve’s updated projections for US interest rates indicated it would cut three times this year.
“Optimism has been surging about the prospects for interest-rate cuts and brighter economic horizons ahead, despite some uncertainty lingering about stubborn inflation in the US,” said Streeter.
However, figures showing the US economy remains strong raised concerns that the central bank might not be able to bring borrowing costs down as quickly as hoped, keeping a lid on sentiment.
Eyes are now on the release of the personal consumption expenditures (PCE) index, the Fed’s preferred gauge of inflation, with traders hoping for a reading that shows price gains slowing further.