Yahoo Finance Stock markets close high as Fed plans interest rates hike despite Ukraine war
European stock markets were higher after Federal Reserve chair Jerome Powell announced the central bank would go ahead with an interest rates hike in March despite the Ukraine crisis.
The FTSE 100 (^FTSE) was up 0.9% to 7,394.56 points, shrugging off concerns about the crisis and surging energy prices.
Fed chair Jerome Powell said: "With inflation well above 2% and a strong labor market, we expect it will be appropriate to raise the target range for the federal funds rate at our meeting later this month.
"The process of removing policy accommodation in current circumstances will involve both increases in the target range of the federal funds rate and reduction in the size of the Federal Reserve’s balance sheet."
Elsewhere in Europe, France’s CAC (^FCHI) was 1.1% higher and the DAX (^GDAXI) rose 0.1% in Germany.
New figures released on Wednesday showed eurozone inflation climbed to a fresh high in February as energy prices soar, intensifying a policy dilemma for the European Central Bank (ECB). Russia accounts for about 40% of the bloc's imports of natural gas.
Consumer price inflation accelerated to 5.8% from 5.1% in January, beating market expectations of 5.4%. This marks the fourth consecutive month in which the inflation rate hit a record high.
Watch: Biden focuses on Ukraine, economy in State of Union and says we will 'be okay'
It comes as analysts have said that soaring energy prices are ratcheting up fears of "stagflation" as oil prices surged past $111 (£83.45) a barrel.
"Anxiety is again rippling through global financial markets with the fear of stagflation taking hold, as the Ukraine conflict ratchets up inflationary pressures and threatens to derail global growth," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
However, with Biden under increased pressure to halt crude imports from the Kremlin, "hitting Russia even harder with boycotts will cause sharp ricochet of financial pain" Streeter said.
"The worry is that it will do little to break Russia’s immediate resolve, which could lead to a long drawn out economic conflict," she added.
Read more: UK to impose financial sanctions against Russia's central bank
Benchmark oil prices soared above $111 a barrel on Wednesday to a multiyear high as officials warned that global energy security is under threat amid the Ukraine crisis.
The latest run-up came after members of the International Energy Agency (IEA) agreed to release supplies from their oil reserves and despite efforts by the west to exclude oil and gas from their sanctions on Russia.
Brent (BZ=F) was up 6% to $111.3 a barrel. The oil benchmark topped $105 a barrel in intraday trading last week, breaching that level for the first time since 2014. US light crude (CL=F) rose over 5.8% to $109.44.
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Investors await a meeting of OPEC and other major producers, including Russia, later on Wednesday where they will discuss whether to ramp up output to temper the price rises, which are helping fan inflation.
Meanwhile, natural gas (NG=F) recorded its third day of strong gains it was up 3.9% at the time of writing.
There have also been concerns that the crisis will drive food prices higher after wheat jumped to a 14-year high. The most actively traded contract in Chicago (ZW=F) hit $10.23 a bushel, the highest level since March 2008. The price of the grain was up by almost a third in the last month, pushing up the cost of everything from bread to biscuits and noodles.
Corn prices also rose to the highest level since 2012, when there was a drought in the US as well as wildfires across Russia and Ukraine.
Russia and Ukraine, account for 20% of the global wheat and corn market, the Kremlin is also the biggest exporter of ammonium nitrate, which is used in fertiliser.
Experts say that surging oil and wheat prices paint a bleak picture for inflation as the conflict upends the global commodity market sending both energy and agricultural prices to their highest levels in years.
With companies like Apple (AAPL), BP, Shell, Exxon (XOM) and Airbus (AIR.PA) exiting the Russian market the "trend is likely to get worse" with significant consequences for global supply of key raw materials as well as demand for goods and services, as everything becomes more expensive.
Michael Hewson, chief analyst at CMC Markets said: "Not only are we seeing it in energy prices, but we are also seeing it in precious and industrial metals prices, of which Russia is a key supplier, and agricultural commodity prices as well.
"The rise in agricultural commodity prices is a bigger concern, and there are two reasons for this."
Other commodities have also surged to record highs. Aluminium (ALI=F) prices hit a record high. Three-month aluminium on the London Metal Exchange rose 2.9% to $3,570 a tonne
Nickel neared the highest level in 11 years as traders brace for supply disruption, while zinc and copper also pushed higher.
Russia is a major metals producer, and produces 6% of the world’s aluminium, and 7% of its mined nickel.
Read more: How Russia's war on Ukraine is impacting stock prices
US benchmarks, opened in the green on strong labour market numbers and as the Fed said it plans to raise interest rates for the first time since 2018 despite the Ukraine war.
Wall Street’s S&P 500 (^GSPC) rose 64.36 points, or 1.1%, to 4350.42. The tech-heavy Nasdaq (^IXIC) was up 0.8%. The Dow Jones (^DJI) pushed 1% higher.
The Fed announcement came as job growth in the country beat market expectations. American firms added more jobs than forecast last month as COVID cases dropped and restrictions eased.
Payrolls rose by 475,000 in February, according to data from the ADP Research Institute. The initial January print showed a 301,000 plunge in the month, the worst since April 2020, but was revised up to a 509,000 gain.
Meanwhile, US president Joe Biden announced he would shut off US airspace to Russia and labelled president Vladimir Putin a "dictator" in his first State of the Union address. He also warned Putin would "pay a continuing high price" for the invasion of Ukraine.
Asian stock markets were lower overnight amid renewed pressure with the Nikkei (^N225) declining 1.7% in Japan, while the Hang Seng (^HSI) fell over 1.8% in Hong Kong and the Shanghai Composite (000001.SS) was 0.1% lower.
