Europe Markets: Volkswagen and Shell stand out as European stocks fight for traction amid Russia-Ukraine tensions

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
ES00,
-0.60%
YM00,
-0.88%
NQ00,
-0.62%
were also volatile, while Russia’s MOEX stock index recovered from a 5% drop to trade down 1%. The ruble
USDRUB,
-1.43%
was down 1.7%, trading at a low not seen since early 2020, under 80 per dollar.

Hurting even worse was the German DAX
DAX,
-0.27%,
down nearly 2%, due to the country’s heavy dependence on Russian gas. The French CAC 40
PX1,
-0.04%
was off 1.4% and the FTSE 100
UKX,
+0.23%
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.
CL00,
+3.67%
and Brent crude futures
BRN00,
+2.78%
3% and nearly 2% higher, respectively. Energy companies were in the lead, with Shell
SHEL,
+2.03%
SHEL,
+1.17%
and BP
BP,
+0.62%
BP,
-0.25%
up 1.5% and 0.5% each.

Auto stocks were also up, led by Volkswagen
VOW3,
+9.54%,
up 9% after the German automaker said it was mulling an IPO for its Porsche
PAH3,
+13.09%
unit that climbed 13%.

Tech stocks were also higher, led by ASML
ASML,
+2.51%
was up 1.8%.

Banks were among the biggest decliners. Shares of HSBC
HSBC,
+1.17%
HSBA,
+0.26%
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.