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Stock markets fall amid Russia-Ukraine war fears

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·Finance Reporter, Yahoo Finance UK
·4-min read
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European stocks join Asia sell-off as Russia-Ukraine tensions grow
Volunteer defence units train in Kyiv as worries about a possible military conflict between Ukraine and Russia rattle stock markets. Photo: Sean Gallup/Getty

Stock markets around the globe tanked as tensions between the West and Russia over the military buildup on the border with Ukraine dented sentiment and investors brace for the Fed's meeting later this week.

The S&P 500 (^GSPC) fell 2.53%, after the benchmark index endured its third consecutive and biggest weekly drop since March 2020. The tech-heavy Nasdaq (^IXIC) lost 2.89% and the Dow Jones (^DJI) retreated 2.09% as European markets closed in the red.

With investors expecting the Fed to begin raising rates as soon as its March policy meeting, costly shares in tech companies and other expensive growth stocks now look relatively less attractive.

Among individual stocks, Tesla (TSLA), due to file earnings Wednesday, lost 4.3% while chip company Nvidia fell 3.7%.

Electric-vehicle leader Tesla traded down over 4% Monday. Chart: Yahoo Finance
Electric-vehicle leader Tesla traded down over 4% Monday. Chart: Yahoo Finance

Shares were mostly lower in Europe and Asia on Monday after Wall Street logged its worst week since the pandemic began in 2020.

Near closing, the FTSE 100 (^FTSE) was down 2.32%, while the CAC (^FCHI) had tumbled 3.47% and the DAX (^GDAXI) was down 3.37%.

The London market has fallen sharply amid more selling of tech stocks. Chart: Yahoo Finance
The London market has fallen sharply amid more selling of tech stocks. Chart: Yahoo Finance

Housebuilders, miners and technology-focused stocks all had a role in the London index's decline. Owners of housebuilder shares were on edge following the Purchasing Managers’ Index (PMI) releases from IHS Markit/CIPS, which rang alarm bells on the inflation front.

Unilever (ULVR.L) posted the biggest gain, up 6% or 225p to £3,900 after it emerged that activist investor Nelson Peltz's Trian fund has built a stake in the consumer goods giant.

Consumer goods giant Unilever is the top riser on the FTSE 100. Chart: Yahoo Finance
Consumer goods giant Unilever is the top riser on the FTSE 100. Chart: Yahoo Finance

Markets are worried that there could be an imminent military conflict between Ukraine and Russia.

"The threat of conflict breaking out on the doorstep is hanging over European indices, as hopes begin to fade that there will be fresh meaningful moves from diplomats," Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said.

"The tech sector jitters are continuing, unsurprising given the seemingly unstoppable slide of the Nasdaq composite and the march downwards of the S&P 500 on Friday."

The US State Department recommended on Sunday that all US citizens in Ukraine depart the country immediately, citing Russia’s extraordinary military buildup on the border.

“Our recommendation to US citizens currently in Ukraine is that they should consider departing now using commercial or privately available transportation options,” the State Department said.

On Saturday, the UK’s Foreign Office accused Moscow of seeking to oust Ukraine’s pro-Western government and replace it with a pro-Russian administration. The Kremlin, in response, accused the UK of spreading disinformation.

Read more: Omicron holds back UK recovery as hospitality and travel sectors suffer

Craig Erlam, senior market Analyst at OANDA, said: "It could be a make or break week for the markets, with the Fed meeting on Wednesday, big tech earnings, and ongoing tensions on the Ukraine/Russia border. That may sound a bit over the top given how deep a correction we've already seen, particularly in the Nasdaq, but it could get much worse before it gets better.

"Wednesday is going to be massive. The Fed needs to strike the right balance between taking inflation seriously and not wanting to cause further unnecessary turmoil in the markets. Not an easy balancing act when four hikes are already priced in, alongside balance sheet reduction, and some are arguing it's not enough.

"That's a lot of pressure for a meeting that's not really live but investors will be hanging on every single word."

Precious metals made further gains amid the growing tensions between Russia and Ukraine.

Gold (GC=F), seen as a hedge or haven by investors, hit $1,840 a troy ounce, extended gains since the start of December to more than 3%.

Investors are also worried about how aggressively the Federal Reserve, which holds a policy meeting this week, might act to cool rising inflation.

Read more: UK dividend income rises to £94bn in 2021

“The Federal Reserve meeting later this week is expected to confirm the fears which investors have been harbouring so far this year, namely that that apart from an acceleration of tapering, interest rate cards are also likely to pepper the remainder of 2022,” Richard Hunter from interactive investor said.

“The current consensus is for an initial hike in March, followed by a further two or three rises which could take the rate to 1% by year end. While the moves are increasingly necessary given relatively rampant inflation, they also bring the likelihood of dampening earnings prospects.”

Asian markets finished mixed. The Nikkei 225 (^N225) gained 0.24% and the Shanghai Composite (000001.SS) rose 0.04%. The Hang Seng lost 1.31% (^HSI).

Meanwhile, Brent crude oil (BZ=F) also lost 1.23% to trade at $86.81 a barrel and the US crude (CL=F) dropped 1.34% to $83.80 per barrel on Monday.

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