World stocks at 1-year lows on inflation shock worries; gold shines

By Saikat Chatterjee

LONDON (Reuters) - World stocks held at a one-year low on Tuesday, while gold climbed above the key $2,000 level, as the prospect of a ban on Russian oil imports pushed up oil prices and raised concerns of soaring inflation and slowing economic growth.

President Joe Biden's administration is willing to move ahead with a U.S. ban on Russian oil imports even if European allies do not, U.S. sources indicated, while Russia warned that prices could surge to $300 a barrel and it might close the main gas pipeline to Germany if the West halts oil imports over the invasion of Ukraine.

International oil benchmark Brent crude, which briefly hit more than $139 a barrel in the previous session, was up about 2.6% at $126.42.

Still, with Europe rejecting plans to ban energy imports, there was some relief and European stocks picked up more than 1% in early trading, although some analysts said that may be a temporary reprieve.

Since mid-February, European banks have lost a quarter of their share value and an earnings hit looks inevitable.

After the S&P 500's worst day since October 2020, Wall Street futures pointed to more losses.

"The price action appears to reflect building concerns over a sharper slowdown/recession for the global economy on the back of the energy price shock," Mizuho strategists said in a note.

The MSCI world equity index, which tracks shares in 50 countries, was down 0.2% and has lost 10% since early February. It was down as much as 0.5% in early Asian trading, hitting its lowest level since March 2021.

An Asian stock market gauge lost 1% in afternoon trade, tracking a bruising Wall Street session with Japan and Hong Kong leading losses.

"Clearly oil is in the firing line now from both sides. And there's a little bit of brinkmanship as to who can threaten whom when it comes to oil imports or exports," said Kyle Rodda, a market analyst at IG Australia.

Price action in the currency markets reflected increased investor nervousness with the U.S. dollar advancing against the Aussie, signalling traders were becoming increasingly pessimistic about the global growth outlook. A currency market volatility gauge jumped to a two-year high.

U.S. crude ticked up 1.8% at $121.55 a barrel, while prices of many other commodities, including nickel, continued to rise as industrial buyers and traders scramble as the Russian-Ukraine conflict shows no sign of cooling.

UBS Global Wealth Management is recommending a neutral stance on equities and advising clients to hold commodities, energy stocks and the U.S. dollar as portfolio hedges in the short term.

The yield on benchmark 10-year Treasury notes rose to 1.8369% compared with its U.S. close of 1.749% on Monday. The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 1.5947% compared with a U.S. close of 1.548%.

The rally in oil and other commodities prices will only add to the global inflationary pulse with data this week expected to show the U.S. Consumer Price Index climbed a stratospheric 7.9% on a year-on-year basis in February, up from 7.5% in January.

With the outlook for European growth darkening, the euro was up 0.1% on the day at $1.0857, after taking a beating and falling 3% last week to its lowest level since mid-2020.

The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was steady at 99.212.

 

(Reporting by Saikat Chatterjee; Additional reporting by Sujata Rao and Julie Zhu; Editing by Susan Fenton)