US stocks fell and oil prices rose as concerns over rising commodity prices and uncertain progress on Russia-Ukraine ceasefire talks weighed on investors.
The S&P 500 fell 0.2% in early trading Wednesday, while the tech-heavy Nasdaq Composite Index slipped 0.2%. The Dow Jones Industrial Average was last down less than 0.1%. On Tuesday, major US stock indexes rose, extending the S&P 500’s winning streak to four sessions.
Major US equity indices are on track to end March with solid gains after a mid-month reversal sent shares higher. This month, investors had to deal with the war in Ukraine, rising inflation and a Federal Reserve that has started raising interest rates for the first time since 2018. Nonetheless, traders have continued to invest in US stocks. At the close on Tuesday, the S&P 500 was up 5.9% for the month.
Still, strategists and investors say the recovery is fragile. Kremlin spokesman Dmitry Peskov said on Wednesday that talks with Ukrainian negotiators in Istanbul had not brought the two countries any closer to an agreement that would end the Russian invasion.
Big swings in everything from oil prices to government bonds have regularly weighed on sentiment in recent weeks. For example, rising oil prices pushed stocks lower on Wednesday. Brent crude, the international benchmark for oil prices, rose about 4% to $111.98 a barrel.
In Europe, often volatile natural gas prices rose more than 10% after Germany indicated it was preparing for a possible cut in Russian gas supplies. German officials said gas supplies to the country from Russia will continue uninterrupted but that this will trigger the early warning phase of a contingency plan in place for potential energy shortages. Economics Minister Robert Habeck said the warning was a precautionary measure.
“This is a concern… that gas prices could rise further and add to inflationary pressures,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
Investors also struggled on Wednesday with rising skepticism about Russia-Ukraine peace talks, she said. On Wednesday, Russia dampened hope that significant progress had been made. Kremlin spokesman Dmitry Peskov said the country had nothing particularly promising to show.
“Hopes were much higher yesterday that there could be a breakthrough in the talks, but I think those hopes have faded,” Ms Streeter said. “I think [markets] will continue to be quite volatile.”
In the bond market, traders say they closely monitor the so-called yield curve, which measures the spread between short and long-term interest rates and is often taken as a sentiment indicator of economic growth prospects. The yield curve briefly inverted on Tuesday, with two-year US Treasury yields beating the benchmark 10-year bond for the first time since 2019.
An inversion in the US Treasury yield curve has been a warning sign of a recession for decades, and it looks set to flare up again soon. The WSJ’s Dion Rabouin explains why an inverted yield curve can so reliably predict a recession and why market watchers are now talking about it. Figure: Ryan Trefes
On Wednesday, the yield on the 10-year Treasury traded higher than the yield on the two-year note. The 10-year recently traded up 2.378%, according to Tradeweb, compared to 2.399% on Tuesday. The two-year yield traded up 2.334%, down from 2.349% on Tuesday. An inverted yield curve is sometimes seen as a recession signal. Yields fall when prices rise.
Wealth managers say the risk of a recession is currently greater in Europe than in the US, partly due to the continent’s relative reliance on Russian exports. Russia supplies around 40% of the European Union’s natural gas.
A European recession is “within our baseline scenario,” said Seema Shah, chief strategist at Principal Global Investors. In addition to the continent’s dependence on Russia for gas and other commodities, Europe is also struggling with significant inflation, she said. On Wednesday, new data showed that consumer prices in Germany rose 7.3% yoy in March.
Yields rose in the German bond market, with the benchmark 10-year German Bund trading up 0.692%. The yield on the two-year Bund was around 0.027%. The last time the two-year Bund yield traded consistently above zero was in 2014.
Traders worked on the floor of the New York Stock Exchange on Tuesday.
Photo: Courtney Crow/Associated Press
In Europe, the pan-continental Stoxx Europe 600 fell 0.6% and was on track to embark on a three-day winning streak. The German DAX index fell by 1.6%. Banks and transportation stocks were among those that declined in the region. French automaker Renault slipped 3%. Société Générale lost 2.2%. Deutsche Bank fell 1.7%.
Shares of the European oil giants rose with energy prices. Shell rose 3.8% while BP rose 1.9%.
Energy stocks — some of the best-performing market participants this year — also traded higher in early trading in New York, with Marathon Oil and Occidental Petroleum each up more than 2%.
Meanwhile, shares of Lululemon Athletica rose 5.8% after posting higher sales and earnings in the fourth quarter.
On the currency markets, the euro climbed 0.3% to around $1.11. The ICE US Dollar Index, which tracks the currency against a basket of other currencies, fell 0.4%. The Japanese yen recovered from its recent slide, rising 0.8% against the dollar after the Bank of Japan ramped up its bond purchases.
In Asia, indices mostly rose higher. In Hong Kong, the Hang Seng gained 1.4%, while the Shanghai Composite Index in mainland China rose 2%. In contrast, the Japanese Nikkei 225 fell by 0.8%.
– Matt Grossman contributed to this article.
Write to Caitlin McCabe at [email protected]
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