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World shares rise, oil falls 13% on diplomacy, OPEC nation's pledge

Published 2022-03-08, 09:10 p/m
© Reuters. FILE PHOTO: A man looks at stock market monitors in Taipei January 22, 2008. REUTERS/Nicky Loh

By Elizabeth Dilts Marshall

NEW YORK (Reuters) - Global stock markets rallied in Europe and North America on Wednesday after three straight days of selling, and oil prices retreated from the peaks scaled over the last week after the United Arab Emirates pledged to boost its oil supply.

Moscow accused the United States on Wednesday of declaring an economic war on Russia, and said it was considering a response to the U.S. ban on Russian oil and energy imports.

Russia's economy faces the gravest crisis since the 1991 fall of the Soviet Union after Western nations imposed sanctions on Russian companies, banks, individuals and its central banking system, following its Feb. 24 invasion of Ukraine.

But there were signs that the conflict could cool on Wednesday, as Russian Foreign Minister Sergei Lavrov arrived in Turkey for more diplomatic talks with his Ukrainian counterpart Dmytro Kuleba.

The MSCI world equity index, which tracks shares in 50 countries, was up 2.91% on the day at 3:30 p.m. EST (2030 GMT).

U.S. stocks surged on Wednesday, with the tech-heavy Nasdaq jumping over 3%, rebounding from several days of declines as oil prices pulled back sharply and investors gauged developments in the Ukraine crisis.

The Dow Jones Industrial Average rose 778.14 points, or 2.38%, to 33,410.78, the S&P 500 gained 123.57 points, or 2.96%, to 4,294.27 and the Nasdaq Composite added 493.33 points, or 3.86%, to 13,288.89.

Europe's STOXX 600 gained 4.68%.

In a rocky trading session, the international oil benchmark Brent crude settled 13.16% lower at $111.14. U.S. crude closed down 12.13% at $108.70 per barrel, its biggest one-day percentage decline since November 2021. [O/R]

Oil at one point fell more than 17% after OPEC member UAE said it would support boosting supply into a market in disarray because of supply disruptions and sanctions on Russia.

Joseph Capurso, head of international economics for the Commonwealth Bank of Australia, noted that though Wednesday's market moves appear large, "equities are still well below, and oil prices are still well above, prewar levels." 

"The proximate cause for the big moves are signs Ukraine may accept Russian demands for neutrality in exchange for security guarantees," Capurso said. If the war does de-escalate, he said, investors will refocus their attention on inflation data and central banking moves.  

WIDESPREAD ECONOMIC CONSEQUENCES

The Russian invasion and ensuing sanctions have played havoc with global supply chains, sent prices soaring across commodities markets and could slow economic growth worldwide.

European companies are suffering more strain on supply chains caused by the war, with German carmakers Porsche, Volkswagen (DE:VOWG_p) and BMW all curtailing output because of a lack of supplies.

The London Metal Exchange halted nickel trading on Tuesday after prices rocketed to over $100,000 a tonne on concern that Russian supplies will be interrupted. The LME said it does not expect to resume trading before Friday.

A World Bank official said high oil prices prompted by Russia's invasion could cut a full percentage point off the growth of big developing economies such as China, Indonesia, South Africa and Turkey.

Emerging market stocks lost 0.19%.

"War is inflationary and this war in particular is very inflationary... not just in terms of energy, oil and gas, but it's inflationary across the commodities complex," said Dan Scott, chief investment officer at Vontobel.

"Grain prices don't react to central bank policy, and nor do necessarily nickel prices.... Hiking interest rates is not going to have a direct impact."

After a four-session rally, spot gold fell on Wednesday by 2.4% to $2,003.66 an ounce, as markets became less risk-averse.

The European Central Bank meets on Thursday, but given the threat of stagflation - when prices soar and growth slows - economists expect rate hikes will be put off until later this year.

The euro rose on reports that European Union countries were discussing joint bond issuance to finance energy and defenee spending. The euro up 1.61% to $1.1074, while the dollar index fell 1.18%.

German government bond yields rose as investors awaited the ECB meeting.

© Reuters. Traders work on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., March 7, 2022. REUTERS/Andrew Kelly

The 10-year U.S. Treasury yield was 1.9235%, as U.S. job openings, a measure of labor demand, fell by 185,000 to 11.263 million in January.

Elsewhere, bitcoin surged 9% to $42,260 after U.S. President Joe Biden signed an executive order requiring government agencies to assess the benefits and risks of creating a central bank digital dollar.

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