Global equity markets fell on Tuesday as investors grew concerned about rising inflation after the European Union imposed a ban on Russian oil imports, resulting in new highs for crude oil prices.
The European Union agreed to reduce its oil imports from Russia by 90%. This is the bloc's toughest sanctions against Moscow over the invasion of Ukraine.
According to Charles Michel, the president of the European Council, the agreement reached by the EU and Russia on Tuesday provided the necessary framework for implementing the bloc's new sanctions on Russia. The ban on the export of Russian oil to the EU will immediately reduce the amount of oil that Russia can use to fund its war machine.
"This immediately covers more than 2/3 of oil imports from Russia, cutting a huge source of financing for its war machine. Maximum pressure on Russia to end the war," Michel said.
The new sanctions will affect Russian crude oil shipments. They will be phased in over a six-month period, with refined products coming into effect over eight months. Hungary was exempted from the ban on pipeline oil.
Crude oil's new highs
Oil prices hit new highs on Tuesday after the European Union imposed new sanctions on Russia. Benchmark Brent crude rose 0.96% to $124.64 a barrel. It was earlier at $122.84, its highest level since March 9.
However, despite the sanctions, Brent crude futures fell 1.7% to settle at $115.60 a barrel. According to reports, members of the Organization of Petroleum Exporting Countries (OPEC) considered reducing their production.
The price of US West Texas Intermediate crude reversed earlier gains and fell 0.06% to settle at $115.08 a barrel.
According to Thomas Hayes, a managing member of Great Hill Capital, high oil prices are harmful to inflation. "Energy is the input cost for basically everything and high oil prices are bad for inflation," he said.
Treasury yields rise
The yield on the 10-year Treasury note rose to a one-week high, gaining 2.8%, as inflation concerns emerged after the euro zone's inflation rate hit a record high.
The rise in Treasury yields was triggered by comments from Christopher Waller, the governor of the Federal Reserve. Waller said that the central bank should continue raising interest rates until inflation declines. He also noted that the Fed should not hesitate to raise rates again in June and July.
The major indexes fell on Tuesday as investors grew concerned about rising inflation. The Dow Jones Industrial Average lost 0.67% to 32,990.12, the S&P 500 lost 0.63% to 4,132.15, and the Nasdaq Composite index dropped 0.41% to 12,081.39.
The dollar was supported by the rising Treasury yields and concerns about global inflation. Although the Federal Reserve is expected to keep interest rates at record lows for a long time, investors are still nervous about the potential impact of inflation on the economy.
The dollar index, which measures the performance of the US dollar against a basket of major currencies, was up 0.345% at 101.770.
Gold fell 1%, making it the second straight month of declines. The rise in the dollar and the rising Treasury yields were the main factors that affected gold's performance for the second consecutive month. Despite the concerns about inflation, the metal still remained vulnerable to a potential rise in interest rates.
"The market had to consolidate some pretty aggressive gains from last week, which was a big move from the lows, and Waller gave them a reason to do so," Hayes said about the current market condition.