Markets head for second session of steep losses on nuclear plant news

European stocks were on track for a second session of steep losses as Russian forces seized a Ukrainian nuclear plant following another night of relentless bombardment.

The Stoxx 600 share index, which fell more than 2 per cent on Thursday, dropped a further 3 per cent by Friday midday in London. The European equity benchmark is now about 13 per cent lower, in local currency terms, for the year. Germany’s Xetra Dax fell 3.7 per cent and London’s FTSE 100 dropped 3.5 per cent.

Oil rose above $113 a barrel on Friday in a volatile session as fears over disruption to Russian oil exports in the face of Western sanctions offset the prospect of more Iranian supplies in the event of a nuclear deal with Tehran. Signs of an escalation in the Russia-Ukraine conflict, with reports of the fire at the nuclear power plant, spooked markets initially.

Brent crude rose as high as $114.23 a barrel and by lunchtime was up $3.28, or 3 per cent , at $113.74. US West Texas Intermediate (WTI) added $3.19, or 3 per cent, to $110.86 after touching a high of $112.84.

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“Russia’s invasion of Ukraine means that fears over supply will remain front and centre,” said Stephen Brennock of oil broker PVM, though he added that there is “a new sense of urgency” to revive the Iranian nuclear deal.

Crude oil hit its highest in a decade this week and prices are set to post their strongest weekly gains since the middle of 2020, with the US benchmark up more than 20 per cent and Brent 17 per cent.

There was no let-up in other commodities also, with Chicago wheat futures jumping nearly 7 per cent, taking the weekly gain to more than 40 per cent on supply side worries.

Treasuries and gold climbed amid haven demand, while oil headed for its biggest weekly surge in almost two years. The dollar gained and the euro slipped.

Investors exit

The intensifying war is prompting investors to exit European equities like never before amid rising inflation risks, according to Bank of America strategists. Financial stocks also saw record outflows in the week to March 2nd, they wrote citing EPFR Global data.

The cost of protection against default from a basket of high-grade European companies rose above 80 basis points for the first time since May 2020.

“The market mood is deep red,” said Ipek Ozkardeskaya, senior analyst at Swissquote. “European stocks continue feeling the pinch of an escalating war, as the US major indices remain under a decent selling pressure. Investors are unlikely to open or to hold a long position without putting a hedge on it.”

Asian equities and the euro weakened on Friday. The risk-off appetite battered markets across the region, sending Wall Street futures also lower, suggesting more pain for European and US markets when they open later in the day.

RIA News agency cited the Ukrainian atomic energy ministry as saying that a generating unit at the Zaporizhzhia nuclear power plant, the largest of its kind in Europe, had been hit during an attack by Russian troops.

While prices have since trimmed losses from their morning lows on reports there was no immediate change in radiation levels in the area, investors remain extremely anxious.

“Markets are worried about nuclear fallout. The risk is that there is a miscalculation or overreaction and the war prolongs,” said Vasu Menon, executive director of investment strategy at OCBC Bank.

In currency markets, the euro lost further ground and was set for its worst week versus the dollar in nine months. It fell 0.3 per cent to $1.10320 and traded above the day’s lows. It has lost about 1.8 per cent this week, which would be the euro’s worst week since June 2021.

Federal Reserve chairman Jerome Powell on Thursday repeated his comments from Wednesday that he would back an initial quarter percentage point increase in the bank’s benchmark rate. – Copyright The Financial Times Limited 2022 / Reuters