European stocks pared losses Tuesday afternoon on a volatile day for global equities amid increased Ukraine-Russia tensions. Higher energy prices lifted Shell and BP, while a potential spinoff for Volkswagen sent those shares soaring.
The Stoxx Europe 600
came back from a 1.4% drop to trade flat at 454, after those geopolitical tensions knocked 1.3% off the index Monday.
Hopes for a diplomatic solution were fading and fears of a Ukraine invasion rising after Russian President Vladimir Putin on Monday ordered troops into separatist regions of that country and said he would recognize their independence.
U.S. stock futures
were also volatile, while Russia’s MOEX stock index recovered from a 5% drop to trade down 1%. The ruble
was down 1.7%, trading at a low not seen since early 2020, under 80 per dollar.
Hurting even worse was the German DAX
down nearly 2%, due to the country’s heavy dependence on Russian gas. The French CAC 40
was off 1.4% and the FTSE 100
fell close to 1%.
Read: What a Russian invasion of Ukraine would mean for markets as Putin orders troops to separatist regions
European natural-gas prices, based on the Dutch benchmark Title Transfer Facility (TTF), surged 8%. Chancellor Olaf Scholz said Tuesday that Germany had begun halting certification of the Nord Stream 2 gas pipeline from Russia, in response to the Ukraine developments.
That prompted a sharp response from Dmitry Medvedev, deputy chairman of the Security Council of Russia, and former prime minister, who tweeted: “Welcome to the brave new world where Europeans are very soon going to pay €2.000 for 1.000 cubic meters of natural gas!”
President Ursula von der Leyen said over the weekend that Europe can get by in case of “full disruption” from Gazprom.
Still, higher prices will add more pressure on already elevated inflation around the world.
“In normal times, central banks would tend to look through an energy-led rise in inflation, but given the current high rates of inflation, and corresponding concerns about it feeding higher inflation expectations, it’s possible that this adds to the list of reasons for policy makers to raise interest rates,” said Neil Shearing, group chief economist at Capital Economics, in a note to clients.
Fears of geopolitically-driven supply disruptions drove U.S.
and Brent crude futures
3% and nearly 2% higher, respectively. Energy companies were in the lead, with Shell
up 1.5% and 0.5% each.
Auto stocks were also up, led by Volkswagen
up 9% after the German automaker said it was mulling an IPO for its Porsche
unit that climbed 13%.
Tech stocks were also higher, led by ASML
was up 1.8%.
Banks were among the biggest decliners. Shares of HSBC
fell 1% after the banking giant said fourth-quarter profit more than tripled from a year earlier, but warned of lingering risks from China’s troubled real-estate sector.
Shearing said losses seen by global equity markets this year have largely been due to fears over hawkish central banks, meaning threat of a conflict in Eastern Europe may not be priced in. It could end up erasing Europe’s slim outperformance over the U.S. so far this year.