Fear of a Russian invasion of Ukraine has prompted a sell-off in European stock markets and a higher price for crude oil.
The FTSE 100 index of leading UK company shares closed down 1.7% on Monday, with the CAC in Paris down 2.8% and DAX in Germany falling 2.1%.
Sectors including energy, commodities, travel, leisure and banking all declined.
There was a modest decline for the S&P 500 index during trading in the US, while the tech-heavy Nasdaq rose in price.
Investor sentiment in the States is influenced by a hawkish approach to monetary policy from the US Federal Reserve. Policymaker James Bullard calls for a 100 basis point interest rate rise by July.
The rhetoric around monetary tightening in the US comes after prices rose at their fastest pace in 40 years in January, leading Bullard to say that the Fed needs to “front load” its planned interest rate hikes this year.
Bullard said: “The big picture here is inflation is much higher than we would have expected six months ago.”
Broader market sentiment is being driven by the ongoing tensions between Russia and Ukraine, with the US warning an invasion could take place within days.
In the UK, Prime Minister Boris Johnson is scheduled to visit European countries to unite Western allies this week.
The markets also reacted to the Ukraine situation with a higher price for crude oil.
Benchmark Brent crude traded at $96 a barrel on Monday, its highest price since September 2014.
The oil price rose higher due to investor concerns about supply disruptions if an armed conflict erupted in Ukraine.
We can’t possibly know whether Russia will invade Ukraine this week or at any point in the future.
We do know that an invasion of Ukraine would lead to intolerable bloodshed, massive migration of refugees into Europe, and severe economic sanctions across the board.
Is war ever good for investors? The jury is out on that one.
Equities usually fall a little as a result of war, while rising oil prices could push up the profitability of energy firms.
But contrarian investors love the opportunities created by uncertainty.
Baron Rothschild reportedly said in the 18th century, “the time to buy is when there’s blood in the streets.” He made his fortune in the aftermath of the Battle of Waterloo.
For most investors, the right approach during times of uncertainty is to remain well-diversified and continue looking at a long time horizon.
Short-term market volatility is a normal part of investing experience and is arguably the price we pay for positive long-term returns.
