European shares and the euro fell yesterday and investors moved to safe-haven government debt after a stronger-than-expected move by Russia to ban certain imports from Europe and the United States.
Early gains on Wall Street faded, with the S&P 500 falling below its 100-day moving average, a significant technical support level. More broadly, MSCI’s world equity index lost 0.4 per cent.
German government debt yields fell to all-time lows, on increased concern over the effect Ukraine’s crisis will have on euro zone growth. The European Central Bank said following its monthly policy-setting meeting that a sanctions war could worsen the growth outlook on thecontinent, where demand is already weak.
The ECB elected to hold borrowing rates at record low levels yesterday. Europe’s main bourses closed lower, with London’s down 0.6 per cent, Germany’s DAX off one per cent and France’s CAC 40 down 1.4 per cent. The move for the DAX put the index down 10 per cent from its record closing high in early July.
“Geopolitical risks are heightened, are higher than they were a few months ago. And some of them, like the situation in Ukraine and Russia will have a greater impact on the euro area than they have on other parts of the world,” said ECB head Mario Draghi, in post-meeting comments.
Russia said on Wednesday it would ban all food imports from the United States and all fruit and vegetables from Europe in a stronger-than-expected answer to Western sanctions for Mos-cow’s support for separatists in Ukraine.
German Bunds slid to arecord low of 1.069 per cent while the 10-year UK gilts yield touched a one-year low of 2.476 per cent.
Gold climbed back above $1,300 an ounce to $1,311.60 and 10-year US bond yields touched near a two-month low at 2.43per cent.
The tensions have, however, aided the ECB’s efforts to push down the euro. The shared currency was hovering just above a nine-month low against the dollar at $1.3346.
Portuguese stocks, slumped 2.3 per cent, and bonds were again showing significant weakness amid worries the country and its banks will have to pay dearly for the rescue of Banco Espirito Santo.
US stocks succumbed to concerns over Russia after a higher opening as initial enthusiasm from an unexpected drop in jobless claims dissipated.
The Dow Jones industrial average fell 44.44 points or 0.27 per cent, to 16,398.9, the S&P 500 lost 5.28 points or 0.27 per cent, to 1,914.96 and the Nasdaq Composite dropped 6.24 points or 0.14 per cent, to 4,348.81.
“The Russian situation has gone from bad to worse,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.