Stocks have been affected in recent months by a triple dose of uncertainty caused by a shift in monetary policy, inflation, and the run-up to the unprovoked Russian invasion of its neighbour. Volatility has intensified in the past two weeks as Western countries and companies cut off the Russian economy, driving up oil prices.
Analysts expect oil prices to remain high or rise as long as the conflict in Ukraine continues. The United States, Britain and the European Union have moved to limit purchases of Russian oil in recent days, raising the prospect of retaliation. The Kremlin has warned that global oil prices could reach $300 a barrel if Western countries ban Russian energy exports.
But three analysts told the Washington Post that investors appeared to be reassured by recent comments from Ukrainian leaders. Ukrainian President Volodymyr Zelensky Tell ABC News on Monday “refused” from possible NATO membership and one of its aides Tell Bloomberg TV Ukraine is open to discussing the demand for Russian neutrality.
“Any signs of a diplomatic slope — for example, Zelensky expressing openness to a future of Ukraine without NATO membership — will have the effect of calming oil prices,” said Pavel Molchanov, energy industry analyst Raymond James.
In this case, the idea that Ukraine was no longer claiming NATO membership seems to have sparked a short-term speculative rush, and computer-driven trading may have exacerbated stock price rally..
The sharp drop in oil prices comes with stock prices taking a hit, with the leading indicators already in correction territory before the conflict in Ukraine began. With all three indices down more than 8 percent year-to-date, investors are looking for buying opportunities.
“The selling has been relentless in recent weeks, and today it looks like a beach ball has resurfaced after being underwater,” said Michael Farr of investment firm Farr, Miller & Washington, based in the US capital.
Markets jumped in Europe, where energy markets are closely linked to Russia. Overseas, Germany’s DAX climbed 7.9 percent, while France’s CAC 40 rose 7.1 percent. The pan-European Stoxx rose 4.7 percent. Britain’s FTSE 100 index rose 3.2 percent. Asian indices were mostly negative, with the Hang Seng shedding 0.7 percent and the Nikkei shedding 0.3 percent.
Gold, a Russian exporter and a traditionally “safe” asset, fell 2.7 after a broader rally that lasted for weeks, to settle at $1,988.80 an ounce.
Energy stocks, boosted in recent weeks by higher gas prices, fell on Wednesday. Chevron shares were down 2.8 percent by mid-afternoon, Shell 2 percent, and BP 2.5 percent.
Analysts warned that extreme market volatility is likely to continue, with multiple sources of uncertainty regarding inflation, rising interest rates, and rising energy prices still putting pressure on markets.
“Investors should expect continued volatility given uncertainties related to both geopolitical events as well as factors such as inflation and rising rates that could dampen future growth prospects,” said Wayne Wicker, chief investment officer at MissionSquare Retirement.
“Devoted student. Bacon advocate. Beer scholar. Troublemaker. Falls down a lot. Typical coffee enthusiast.”