Stocks have suffered a triple dose of uncertainty in recent months, driven by monetary policy changes, inflation and the steady approach of an unprovoked Russian invasion of the neighboring country. Volatility has intensified over the past two weeks as Western countries and businesses shut down the Russian economy, driving up oil prices.
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Analysts expect oil prices to remain high or rise as long as the conflict in Ukraine continues. The United States, the United Kingdom and the European Union have taken steps in recent days to limit purchases of Russian oil, raising the likelihood of retaliation. The Kremlin has warned that world oil prices could reach $300 a barrel if Western countries ban Russian energy exports.
But recent comments by Ukrainian leaders appear to have reassured investors, three analysts told The Washington Post. Ukrainian President Volodymyr Zelensky told ABC News on Monday he has “cooled off” about the prospect of NATO membership, and one of his aides told Bloomberg TV that Ukraine is open to discussing Russia’s demand for neutrality.
“Any sign of a diplomatic retreat — such as Zelensky’s announcement of an open future for Ukraine without NATO membership — leads to a chill in oil prices,” said Pavel Molchanov, an energy industry analyst at Raymond James.
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In this case, the idea that Ukraine no longer requires NATO membership seems to have spurred short-term speculative growth, and computerized trading could exacerbate the stock price spike..
The sharp drop in oil prices was due to the fact that stock prices were hit hard, and the main indexes were already in the correction zone even before the start of the conflict in Ukraine. With all three indexes down more than 8% since the start of the year, investors are looking for buying opportunities.
“Sales have been relentless in recent weeks, and today it looks like the beach ball has popped out of the water again after being held underwater,” said Michael Farr of DC-based investment firm Farr, Miller & Washington.
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Markets have grown in Europe, where energy markets are closely linked to Russia. Overseas, the German DAX jumped 7.9% and the French CAC 40 jumped 7.1%. The pan-European Stoxx rose 4.7%. The British FTSE100 rose 3.2%. Asian indices were mostly negative, with the Hang Seng down 0.7% and the Nikkei down 0.3%.
Gold, a Russian export and traditional safe-haven, fell 2.7 after a broader weekly gain to settle at $1,988.80 a troy ounce.
Shares of energy companies, supported in recent weeks by rising gas prices, declined on Wednesday. By noon, Chevron shares were down 2.8%, Shell 2% and BP 2.5%.
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Analysts warned that sharp market swings are likely to continue as multiple sources of uncertainty related to inflation, rising interest rates and rising energy prices continue to put pressure on markets.
“Investors should expect continued volatility, given the uncertainty associated with both geopolitical events and factors such as inflation and rising rates, which could dampen future growth prospects,” said Wayne Wicker, chief investment officer of MissionSquare Retirement.