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European stock markets suffer Valentine's Day slump amid Russia-Ukraine conflict

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·Business Reporter, Yahoo Finance UK
·4 min read
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European stock markets suffer Valentine's Day slump amid Russia-Ukraine conflict
European stock markets fell on Monday. In London, the FTSE 100, which has a large exposure to energy and commodities stocks, fell 1.8% after opening. Photo: Nicolas Economou/NurPhoto via Getty

European stock markets tumbled deep into the red on Monday as oil prices rose amid concern around a possible Russian invasion of Ukraine.

In London, the FTSE 100 (^FTSE), which has a large exposure to energy and commodities stocks, fell 1.7% on the day, while the CAC (^FCHI) tumbled 2.8% in Paris, and the Frankfurt DAX (^GDAXI) was 2.1% lower.

Travel and leisure and the banking sector also dragged the indices lower.

Across the pond, the S&P 500 (^GSPC) dipped 0.2% and the tech-heavy Nasdaq (^IXIC) rose 0.7%. The Dow Jones (^DJI) edged 0.6% lower at the time of the European close.

It comes as the Fed's James Bullard called for a more hawkish approach to tightening monetary policy, saying he wanted to see 100 basis points of increases by July.

After consumer prices rose at a four decade high in January, Bullard said the Fed needed to "front load" its plan to tighten monetary policy.

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"The big picture here is inflation is much higher than we would have expected six months ago," he said, adding that rates could be increased in a way that wasn't disruptive to markets.

Over the weekend, tensions between Russia and Ukraine mounted further. The US warned Russia could launch an invasion of Ukraine within days, while UK prime minister Boris Johnson is set to travel to countries in Europe this week in a bid to unite Western allies.

Brent crude (BZ=F) was trading at as much as $96 (£71.14) per barrel on the back of the news, before later retreating, its highest since September 2014, as investors worried about disrupted supplies in an already-strained energy market. West Texas Intermediate was also at a new seven-year high during the session.

This week will mark the ninth consecutive week of gains for oil prices, with analysts betting prices will reach $100 a barrel by the end of the week.

Oil has climbed steadily over the last month. Chart: Yahoo Finance
Oil has climbed steadily over the last month. Chart: Yahoo Finance UK

“Markets are preparing for the risk of war in Europe, and it’s adding to the complex issues driving uncertainty and volatility in global markets currently,” Kyle Rodda of IG said.

“US reports on Friday suggested an invasion by Russia into Ukraine could come as soon as this week — earlier than expected, because it was thought the Russians would avoid making such a move before the end of the Beijing Olympics to placate the Chinese — with further reports today suggesting Wednesday may be the planned day.”

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Michael Hewson of CMC Markets said: “Friday’s move lower in US markets appeared to coincide with comments from US National Security Advisor Jake Sullivan who urged any remaining Americans in Ukraine to leave immediately, and that a Russian invasion could come any day.

“The US also ordered the departure of all US soldiers in Ukraine to leave the country immediately in case they get caught up if hostilities break out.”

Meanwhile, the US dollar (GBPUSD=X) strengthened, hitting a two-week high, as nervous investors sought safe-haven assets. After a recent rally amid expectations for a strong economic recovery, this pulled the pound down by half a cent to $1.351, with the euro (GBPEUR=X) down 0.3% at $1.132, their lowest levels in around a week.

Analysts at ING said: "Should markets move to price in more geopolitical risk, cable may well break below the 1.3500-1.3600 range that has held since the start of February.

"At the same time, we think that this week’s data flow in the UK should continue to support Bank of England tightening expectations."

Asian stock markets fell overnight, with the Nikkei (^N225) more than 2.2% down in Japan, the Hang Seng (^HSI) falling 1.4% and the Shanghai Composite (000001.SS) closing 1% lower.

Watch: Ukraine-Russia crisis: Bombs will drop on Ukraine minutes after Putin gives order, armed forces minister says