Fire at a Ukraine nuclear plant sends stocks south

Europe points to another day of losses after Russian shelling sets a nuclear plant in Ukraine alight.

• DAX is set for 7% losses this week as Russia’s attacks on Ukraine intensify
• US non-farm payroll is expected to show strong job creation; Fed will hike regardless of data
• Oil falls from 14-year highs on hopes of an imminent Iran deal

Reports that Russian shelling has started a fire at Ukraine’s nuclear plant at Zaporizhzhia sent Asian shares lower, tee-ing Europe up for another day of losses. Early reports suggest that the fire has been controlled and that radiation levels have not been affected. The concerning development serves as a terrible reminder of the many unknown and unpredictable risks associated with war.

The DAX is again expected to take the most brutal hit on the open. The index has already broken through critical supports this week and trades at yearly lows. The West has ratcheted up sanctions against Russia this week, which appear to be hitting the Russian economy hard. However, the implications are being felt across the broader financial markets.

Germany is particularly vulnerable, given its dependence on Russian energy. Rising oil and gas prices and the prospect of slower growth make stagflation a genuine concern. The DAX trades down 7% so far this week alone and heading towards a bear market.

The FTSE is also set to open in the red, but less so than the DAX. The UK index is on track to lose a more modest 3.3% this week as oil majors and resource stocks help offset losses in other sectors.

US jobs report

Looking ahead, the main focus away from Russia and Ukraine is the US non-farm payroll report. The closely watched report is probably less critical this month than it has been for a long time in the sense that the Fed has as good as decided to raise interest rates in March, regardless of what February’s jobs report revealed. In his testimony before Congress, Fed Chair Powell said this week that a 25-basis point rate hike is appropriate.

Still, expectations are for another impressive month of job creation, with 407k jobs expected to be added to US payrolls after 467k were added in January.

Heading into the report, the US dollar is on the rise, trading at levels last seen in May 2020 versus a basket of currencies. EUR/USD trades at 21-month lows as it heads for 1.10.

Oil

Wild swings in oil continue. WTI crude oil rose to $115 in the previous session, a level last seen in 2008, as the world shunned Russian oil and tight supply got even tighter. Reports that the Iran 2015 nuclear pact could be revived imminently saw oil prices plunge to $106. A signed deal with Iran would see sanctions on Iran lifted, and Iranian oil could come flooding back to the market, helping to ease but not resolve tight supply and some inflationary pressures.