Global markets convulsed Thursday as Russia launched a military assault on Ukraine, with the three major U.S. indexes clawing back from steep losses.
Most major Asian stock indexes fell about 3 percent, while most European markets recorded even deeper losses. For many indexes, it was the steepest decline since late last year, when the omicron variant of the coronavirus sparked fears of another dark phase in the pandemic.
The three major U.S. indexes careened at the open, slumping 2 percent or more. But they recovered in afternoon trading after Biden announced new sanctions and investors bet that the escalation in Ukraine would stall plans to raise interest rates, according to Dan Ives, managing director at Wedbush Securities.
The tech-heavy Nasdaq briefly entered a bear market in morning trading before reversing course and adding 3.3 percent, or 436.10 points, to close at 13,473.59. The broader S&P 500 made a similar turnaround, swelling 1.5 percent, or 63.20 points, to settle at 4,288.70. The Dow Jones industrial average dug out from a deficit of more than 800 points to end the session with a 0.3 percent, or 92.07-point, gain at 33,223.83.
Though the incursion is just beginning, the signals Thursday suggested a wide-ranging military offensive that would trigger deep sanctions from the United States and European Union, hurting not just the Russian economy, but the whole world’s economy. Consumers worldwide already are absorbing widespread price increases tied to raging inflation and troubled energy markets, and now those pains will probably grow more acute.
“The bigger the conflict gets, the larger the impact to global energy supply will be, the larger the drag on the European economy, and the larger the potential drag on U.S. exports and consumption spending will be,” Bill Adams, chief economist for Comerica Bank, said Thursday in comments emailed to The Washington Post.
Russia is a dominant natural gas and oil exporter, particularly to Europe, and some of its supply transits via pipeline across Ukraine. Oil prices also swung wildly, surging as much as 8 percent before retreating. West Texas Intermediate, the U.S. oil benchmark, was trading 1.4 percent higher, around $93.40 per barrel. After brushing triple digits for the first time since 2014, Brent crude, the global benchmark, pulled back and was trading near $96 per barrel.
The national average for a gallon of gasoline on Thursday was $3.54 according to AAA, up from $3.33 just a month ago. A year ago, when demand was still largely flattened by the pandemic, the national average was just $2.66.
Russia has warned that Americans will fully feel the “consequences” of sanctions the White House announced earlier this week. Biden has acknowledged that the crisis could lead to higher gasoline prices, while U.S. businesses have been warned to prepare for possible cyberattacks. But in remarks Thursday, Biden insisted he will do “everything” in his power to limit the pain Americans feel at the gas pump, and said that the U.S. is “prepared to respond” to cyber threats to companies and infrastructure.
Markets loathe uncertainty, and the Russian attack is arriving at a moment when the economic recovery is under pressure from such pandemic-related challenges as soaring inflation, chaotic supply chains and labor shortages.
Though investors typically shrug off geopolitical tensions, the Ukraine crisis has weighed on the markets because of Russia’s central role in global energy markets. Russia produces about 10 percent of the world’s oil supply, on par with the United States and Saudi Arabia, and surging energy costs will ripple quickly through the global economy.
“Russia invading Ukraine has added to an already tense year, with investors selling first and asking questions later,” Ryan Detrick, LPL Financial Chief Market Strategist, said Thursday in comments emailed to The Post. “But it is important to know that past major geopolitical events were usually short-term market issues, especially if the economy was on solid footing.”
Investors fled to safer assets Thursday, sending the yield on the 10-Year U.S. Treasury note sharply lower to 1.865 percent. Bond yields move inversely to prices.
Gold — a Russian export and an investor-safe haven — swung between positive and negative territory, trading down more than 0.5 percent by late afternoon, around $1900 per troy ounce.
For all the immediate financial reaction Thursday, no country absorbed greater losses than Russia, whose major stock market, the MOEX index, nosedived some 45 percent in the early hours Thursday before recovering some ground but still closing 33 percent lower. The losses wiped tens of billions off Russian stocks in one of the biggest crashes in equity market history.
Trading was briefly suspended amid the free-fall. The ruble plunged to a record low, giving Russians less spending power when they go abroad.
Oil prices have risen more than 40 percent since December, influenced in part by speculation that Russian President Vladimir Putin might launch an attack.
After Russia’s 2014 invasion of Crimea, Europe’s dependence on Russian energy held the bloc back from enforcing certain both-sides-suffer sanctions. But European leaders this time will probably agree that a more severe response is necessary, and they are drawing up plans to wean themselves from dependence on Russian oil and gas.
That includes, most immediately, shelving the Nord Stream 2 gas pipeline between Germany and Russia. But any new energy strategy is certain to take years — and will come at a massive taxpayer expense. The move was applauded by the United Nations and NATO allies and cited as part of a united response to Russia, but a senior Russian official warned Tuesday that Germany would “very soon” be paying more than double for natural gas.
An analysis last week from Barclays, the British bank, noted that Europe would struggle to “substitute large quantities of Russian oil and gas with alternative energy sources in other countries, especially in a short period of time.” The bank’s analysis said this could lead to rationing, higher prices, and ultimately cut into gross domestic product growth.
Some of those concerns were evident Thursday, when Germany’s DAX index closed nearly 4 percent lower and France’s CAC 40 declined 3.8 percent. The benchmark Stoxx600 index erased 3.3 percent.
European Commission President Ursula von der Leyen said the 27-nation bloc would convene later Thursday to discuss new sanctions. The measures, she said, would weaken Russia’s economic base and its “capacity to modernize” by freezing the country’s assets in the E.U. and stopping its access to European financial markets.