European stocks plunge into bear market territory as surging oil and gas prices fuel economy fears

In some of the most chaotic trading the market has ever seen, benchmark natural gas futures leaped 79% to the equivalent of more than $600 a barrel of oil before paring gains.

European stocks fell to their lowest in a year, with the DAX and Euro Stoxx-50 indexes closing in a bear market as soaring oil prices spurred concerns high inflation would hurt economic growth.

Germany's DAX closed down 2% at the lowest level since November 2020, bringing total declines since its January record high to 21%. The Euro Stoxx 50 ended 1.2% lower, also closing in a bear market.

France’s CAC-40 began the Monday session more than 20% below its January high, but pared declines through the afternoon as Ukrainian and Russian officials prepared to meet again for a third round of talks. 

All three indexes last entered a bear market together in March 2020 at the height of the pandemic slump.

Oil had its biggest daily swing ever, with Brent surging to nearly $140 after the US said it was considering a ban on Russian crude imports.

The international benchmark subsequently pulled back to about $120 and West Texas Intermediate traded above $116, exacerbating fears of a major inflationary shock to the global economy. 

The Biden administration is understood to be mulling whether to prohibit Russian oil imports without the participation of allies in Europe, at least initially.

Airline shares badly hit

Airline shares were hit badly by the latest surge in oil — Ryanair falling 8% and Aer Lingus owner IAG dropping nearly 6%. 

Airlines are seeing prospects for a strong profit rebound from two years of pandemic turmoil rapidly slip away after the price of oil surged further.

An oil shock triggered by Russia’s war in Ukraine is the latest blow to carriers that have already had to cancel flights and reroute long-haul journeys to avoid shuttered airspace.

Earnings are at risk in Europe, where higher fuel costs will add to widespread flight disruption, while carriers in the US and Asia are largely unhedged and will feel the full impact of price rises.

European energy prices started another tumultuous week, with wild price swings and fresh records as fears escalate about potential disruptions in Russian supplies.

In some of the most chaotic trading the market has ever seen, benchmark natural gas futures leaped 79% to the equivalent of more than $600 a barrel of oil before paring gains.

The Stoxx Europe-600 index declined 1.1% to the lowest level in a year, as investors grapple with oil at $120 a barrel.

“This will be prolonged and painful,” said Keith Temperton, a trader at Forte Securities. 

Meanwhile inflation is exploding higher; gas prices could double again. Same with gasoline.” 

Energy stocks surged, climbing the most since November 2020, while carmakers, banks and food and beverage stocks underperformed. 

The Stoxx-600 is down about 16% from its January record high.

UBS Global Wealth Management cut global and euro area equities to neutral from the most preferred asset class, citing increased uncertainty surrounding the war in Ukraine, the extent of future sanctions on Russia, commodity prices, global growth and central bank policy.

• Bloomberg and Irish Examiner