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What’s happening: Germany’s DAX index and France’s CAC 40 fell 3.8% in early trading, while the FTSE 100 in London dropped 3.5%. US futures also dropped, but the losses were much less severe.

This divergence has played out since Russia invaded Ukraine last week, shocking the world. Europe’s STOXX 600 index has shed more than 6% since February 24. Stocks in Germany, the region’s biggest economy, have plunged 9%. They’re now very close to entering a bear market — a period of extended selling that sends shares down 20% or more from their recent peak.

US stocks have been much more resilient. The S&P 500 has actually gained more than 3% since the invasion, while the tech-heavy Nasdaq Composite is up almost 4%.

“It’s geography, pure and simple,” Michael Hewson, chief market analyst at CMC Markets, told me.

Natural gas prices in Europe have hit record highs this week. While gas has continued to flow from Russia, customers are worried President Vladimir Putin could halt energy supplies to the bloc in retaliation for tough sanctions, or that fighting could disrupt important infrastructure in Ukraine.

Europe imports about 40% of its natural gas from Russia. Germany is particularly exposed: Russia supplies about half of its natural gas. As energy prices soar, corporate profits will take a hit, and rising inflation could eat into consumer spending.

“A prolonged conflict means weaker growth and higher uncertainty,” strategists at Bank of America said in a note to clients Friday. They think the STOXX 600 hasn’t bottomed out yet.

The US economy will also grapple with the effects of rising energy prices that fan inflation. The average price of a gallon of gas in the United States jumped to $3.84 on Friday, according to AAA. That’s a leap of more than 10 cents in one day.

But compared to Europe, it’s more insulated from the fallout.

“While the Russia-Ukraine military conflict is likely to push oil prices higher, the US is relatively less vulnerable to energy price spikes than are other advanced economies,” Moody’s Investor Service said in a research note published Thursday.

The impact could ultimately come down to just how much higher oil prices go. US oil futures rose above $112 per barrel on Friday and show no signs of pulling back.

That said: Investors view stocks in the United States as a safer bet, at least for now. On Thursday, Citigroup recommended that its clients add more US shares to their portfolios.

The US jobs recovery is poised to push ahead

Inflation has made Americans deeply worried about the state of the US economy. But the jobs market — a key data point — continues to look strong.

The latest: Employment data for February is due Friday. Economists polled by Refinitiv expect to learn that 400,000 positions were added last month, pushing the unemployment rate down to 3.9%.

“We expect employment to have continued to recover in February following the unexpectedly strong January report — despite the Omicron-led surge in Covid cases,” strategists at TD Securities told clients.

A healthy jobs report may not do much to change the mood in markets, with investors staying laser-focused on developments in Ukraine.

“Economic data has taken a backseat to markets heavily focused on geopolitical developments over the last week,” Citi economists Veronica Clark and Andrew Hollenhorst said.

Still, they emphasized that such data “will continue to be important for [Federal Reserve] decisions” and market expectations for interest rate hikes.

Fed Chair Jerome Powell told Congress this week that despite uncertainty surrounding the war in Ukraine, the central bank is ready to raise interest rates later this month.

On the radar: Investors and economists will be looking closely at whether wages keep rising, one consequence of an increasingly competitive job market. While wage gains are good news for workers struggling with higher costs, they can also feed inflation if employers keep jacking up prices to offset labor expenses.

Rivian backlash shows pressure on carmakers

Rivian, which quickly became one of the most valuable automakers in the world following its Wall Street debut last year, is facing a revolt from its customers.

The company tried to hike prices on preordered vehicles by roughly 20%, pointing to supply chain issues and higher component costs. But it was forced to reverse the move and apologize after an intense backlash.

“I have made a lot of mistakes since starting Rivian more than 12 years ago, but this one has been the most painful. I am truly sorry,” CEO RJ Scaringe said. “Trust is hard to build and easy to break.”

Investor insight: Rivian has at times been valued at more than Volkswagen, Ford and General Motors, even though it’s produced just a tiny fraction of the number of vehicles those companies sell annually. Its stock has plunged more than 50% this year, however, as investors dump riskier bets.

Rivian is in a unique position as it tries to build its customer base and ramp up deliveries. But the problems it faces with higher costs are hitting the entire industry.

The war in Ukraine is only making the situation worse. Companies are halting production in Russia, but supply problems tied to the conflict are affecting plants elsewhere, too. Shortages of parts will force Volkswagen to curb production at its main factory in Wolfsburg, Germany next week, for example.

Up next

The US jobs report for February arrives at 8:30 a.m. ET.

Coming next week: How much did US consumer prices rise last month? New data is expected to reveal year-over-year inflation of 7.8%.

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