Global stocks fell more than six-week highs on Friday on concerns about the Russia-Ukraine war and risks of a recession, and oil fell by $2 a barrel with reserve releases.
European buyers of Russian gas faced a deadline to start paying in rubles on Friday, while negotiations aimed at ending the five-week war were due to resume even as Ukraine braced for more attacks in the south and east.
Russian President Vladimir Putin’s move on gas in response to Western sanctions has prompted Germany, which is most dependent on Russian gas, to accuse him of “blackmail” because it activated an emergency plan that could lead to rationing.
“Recession risks in select countries like Germany from stopping gas delivery would be insignificant,” said Sebastian Galle, chief strategist at Nordea Asset Management.
But Ghali added, “Russia is basically a gas station. If a gas station doesn’t sell its products, it goes bankrupt – they’re not in a position of strength.”
The war also threatens to disrupt the global food supply, with a US government official publishing photos of what he said were damage to Ukrainian grain storage facilities.
The MSCI World Stock Index fell 0.17% to 710.22 versus Wednesday’s high of 724.49, set for little change for the week.
US S&P futures rose 0.29% while European shares and Britain’s FTSE 100 were flat.
Strategists at Buffa Bank said that recession risks will “jump” in the coming months as “the era of rising central bank surpluses ends, Wall Street inflation (and) globalization ends.”
They added that its place “began an era of bears of government intervention, social and political polarization, high street inflation and geopolitical isolation.”
US and European stocks posted their biggest quarterly declines since the COVID-19 pandemic in 2020 in the quarter ended March 31.
But the quarterly decline in US stocks masked a belated return for the S&P 500, which rebounded from a decline of nearly 13% to end the quarter at around 5%.
MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.34% on Friday.
In Tokyo, the Nikkei was down 0.56%, posting a weekly decline of 1.7%.
Friday’s data showed that supply disruptions and rising raw material costs pushed Japanese business confidence to a nine-month low in the last quarter.
Chinese blue chips rose 1.27%, boosted by hopes of policy easing. [.HK]
Oil prices continued to slide after the announcement on Thursday of massive releases of US strategic reserves and ahead of Friday’s meeting of oil-consuming nations to discuss releases of their own reserves.
US crude futures fell more than $2 a barrel to $98.17, and Brent crude futures also fell $2, to $102.66 a barrel.
Oil is on track for a weekly drop of 14% – the sharpest in nearly two years, after an earlier rally largely due to the conflict in Ukraine sent prices up more than 30%. [O/R]
Investors are concerned about whether inflationary pressures will force central banks to raise interest rates significantly, which could trigger a recession.
US jobs data for March will be watched at 1230 GMT for indicators of wage inflation, as well as key job numbers.
“Average hourly earnings are rising but at a slower pace than the rate of inflation,” Ghaly said.
The closely watched spread between 2-year and 10-year US bonds is nearly zero.
A reversal in this part of the US yield curve is seen as a reliable indication that a recession may follow in one to two years. The benchmark 10-year note recorded 2.4170% while the 2-year yield was 2.4057%. [US/]
The dollar, which benefited from safe haven flows and expectations of higher US interest rates, held steady. Against a basket of other currencies, the dollar rose 0.16% to 98.471, and it rose 0.67% against the yen at 122.48. [FRX/]
The euro settled at 1.1060 dollars.
Surprising eurozone inflation data for March at 0900 GMT is expected to give a reading of 6.6%, according to a Reuters poll, although inflation readings for countries within the bloc suggest it could rise further.
The yield on German 10-year government bonds, the benchmark for the euro zone, rose five basis points to 0.6%, after jumping 39 basis points in March, its largest monthly rise since 2009, amid expectations of tightening monetary policy. [GVD/EUR]
Safe haven gold fell 0.25% after its biggest quarterly gain in two years. Spot gold was last priced at $1,932.34 an ounce. [GOL/]
(Reporting by Andrew Galbraith in Shanghai and Saykat Chatterjee in London; Editing by Simon Cameron Moore and Catherine Evans)
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