Geopolitical tensions weighed heavily on global stock markets on Thursday, with indexes extending their declines in afternoon trading while safe-haven assets rose.
Wall Street stocks started the day with modest losses after the United States announced new sanctions against Russia in response to recent unrest in Ukraine. Subsequently, a Malaysia Airlines jet was downed over eastern Ukraine near the Russian border, sparking a further fall in risk assets on concerns that the conflict might widen.
About 300 people died in the crash, caused by a missile fired at the plane, according to a Ukrainian official. The incident was the latest in a series of tensions between Ukraine and Russia that has resulted in clashes along the border, including the targeting of military aircraft.
Even wider equity losses came in the last hour of trading after Israeli Prime Minister Benjamin Netanyahu instructed the military to begin a ground offensive in Gaza.
“I can’t remember a time when there were more geopolitical skirmishes going on, all of which are creating uncertainty,” said Michael Mullaney, chief investment officer at Fiduciary Trust Co in Boston, who said the market was “trading on eggshells.”
The S&P 500 posted its biggest one-day percentage decline since April 10, while the CBOE Volatility index spiked 32 percent in its biggest one-day jump since April 2013. Despite the move, the VIX, at 14.54, remains low by historical standards.
The Dow Jones industrial average fell 161.39 points, or 0.94 percent, to 16,976.81, the S&P 500 lost 23.45 points, or 1.18 percent, to 1,958.12 and the Nasdaq Composite dropped 62.52 points, or 1.41 percent, to 4,363.45.
All 10 primary S&P 500 sectors ended the day with solid losses, but airlines were especially hard hit, with the NYSE Arca Airline Index down 2.6 percent.
The S&P/TSX composite index ended down 21.86 points, or 0.14 per cent, at 15,204.48. Losses were more subdued in Toronto thanks in part to higher gold prices, as well as strong earnings from Canadian Pacific Railway.
The flight to safety pushed the Canadian dollar down 0.11 of a cent to 92.95 cents US.
The aircraft incident sparked a shift to safe-haven assets like U.S. government bonds. The benchmark U.S. 10-year Treasury note rose 22/32 in price, dropping the yield to 2.4584 percent, not far from the 2014 low of 2.438 percent. Still, some said the market impact of the crash would be short-lived.
“For a sustained sub-2.50 percent on the 10-year yield, we need another catalyst to support the idea the economy is not as strong as some people think,” said Anthony Valeri, fixed income strategist at LPL Financial in San Diego.
Gold prices jumped 1.5 percent in their biggest one-day advance in about a month. Silver prices rose 2.2 percent.
The Russian rouble fell 1.8 percent against the U.S. dollar, its biggest one-day decline since June 2013. Major European stock indexes fell just before the close of trading. Moscow’s MICEX stock market fell 2.3 percent and its dollar-traded related index, the RTS index, dropped 3.8 percent.
In the currency market, the Japanese yen rose 0.5 percent against the dollar, while the Swiss franc was little changed and the U.S. dollar was almost flat against a basket of currencies.
European shares ended near their lows of the day. The pan-European FTSEurofirst 300 lost 1.0 percent and the MSCI International ACWI Price Index lost 0.9 percent.
U.S. crude oil futures rose $1.90, or 2 percent, to $103.10 per barrel. Brent gained 0.6 percent to $107.80.
Prior to the report of the downed plane, Wall Street stocks edged lower on a weak reading on U.S. housing starts, which fell well short of expectations in June.
Canadian Pacific posted second-quarter net income of $371 million, or $2.11 per diluted share, up 48 per cent from a year ago and beating estimates by a penny. Its shares ran up $4.50 to $202.33.
CP’s results also gave a lift to rival Canadian National Railways (TSX:CNR). CN shares gained 32 cents to $71.77 ahead of the release of its earnings on Monday.
“Both rail companies are benefiting from volume growth across most of the markets but we’re also seeing incredible strength in the grain side of the business and growth in shipments of oil by rail,” said Colum McKinley, vice-president, Canadian equities, CIBC Asset Management.
“We think that the grain-based business and the crude oil shipment business are going to continue to be strong throughout the reminder of the year and into the first half of next year and that ... should contribute to continued strength in their earnings.”
Loblaw Companies Ltd. (TSX:L) says Galen G. Weston will become president of the retailer as part of broader changes in its management structure. He replaces Vicente Trius effective immediately. Weston was formerly executive chairman of the company. Its shares were down 32 cents to $48.96.
Most TSX sectors turned lower with the energy sector off 1.2 per cent as oil prices continued to benefit from data released Wednesday showing a much larger than expected drawdown of U.S. inventories last week.
The metals and mining sector was 1 per cent lower even as September copper in New York rose one cent to US$3.22 a pound.
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