(Bloomberg) — Stocks and equity futures sank Friday and havens including sovereign bonds jumped on reports that a major nuclear power plant is on fire in Ukraine after shelling by Russian troops.
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Japan led losses in an Asian equity gauge, S&P 500 and Nasdaq 100 futures shed more than 1% and European contracts dropped about 3%. Treasuries rallied, with the 10-year yield falling below 1.80%. Gold and the dollar rose. Oil soared.
Russian forces are firing on the Zaporizhzhia nuclear plant and a fire has broken out, Ukrainian Foreign Minister Dmytro Kuleba said. The euro retreated.
Sentiment was already shaky after Russia’s invasion of its neighbor and transformation into a pariah in the global economy. Energy, metal and grain costs have soared as Russia’s oil and other resources are shunned.
Russia’s military action and sanctions imposed by the U.S. and its allies are creating a range of risks. They include high raw material costs, damage to global confidence that can sap investment and the potential for credit stress to ripple through markets.
“The headlines about the Russian shelling of that nuclear plant are clearly driving a flight to quality trade,” said Chamath de Silva, senior portfolio manager at BetaShares Holdings in Sydney. “It’s classic risk off right now.”
President Vladimir Putin told France’s Emmanuel Macron he plans to fulfill the goals of his invasion, including toppling the government in Kyiv. The U.S. stepped up sanctions, targeting eight wealthy Russians and their families. S&P Global Ratings cut Russia’s credit rating for the second time in a week.
Traders are also evaluating the monetary policy outlook. Chair Jerome Powell reaffirmed that the Federal Reserve is set to start a series of interest-rate hikes to curb inflation, while indicating it will move judiciously.
Powell in testimony to lawmakers Thursday said the Russian attack is leading to risks for inflation and growth. He again backed a quarter-point Fed rate hike later this month. He said “we are prepared to raise by more than that” at one or more meetings if inflation doesn’t come down.
“Rising commodity prices are a big concern for the market, prompting fears of stagflation,” said Fiona Cincotta, senior financial markets analyst at City Index. “The economic clinch point of this war is commodity prices. Higher energy prices, slowing growth, and surging inflation are not a good outlook.”
In the latest U.S. data, the services sector moderated and jobless claims fell by more than forecast. Traders are awaiting the key monthly employment report.
What to watch this week:
Some of the main moves in markets:
Stocks
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S&P 500 futures fell 1.4% as of 10:03 a.m. in Tokyo. The S&P 500 fell 0.5%
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Nasdaq 100 futures slid 1.6%. The Nasdaq 100 fell 1.5%
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Japan’s Topix index fell 1.9%
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South Korea’s Kospi index lost 1.5%
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Australia’s S&P/ASX 200 index dropped 1.6%
Currencies
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The Bloomberg Dollar Spot Index rose 0.2%
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The euro was at $1.1023, down 0.4%
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The Japanese yen was at 115.43 per dollar
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The offshore yuan was at 6.3238 per dollar
Bonds
Commodities
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West Texas Intermediate crude rose 3.1% to $111.07 a barrel
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Gold was at $1,942.86 an ounce, up 0.4%
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