Stocks Fall as Oil Jumps Amid Tension Over Ukraine: Markets Wrap
Stocks Fall as Oil Jumps Amid Tension Over Ukraine: Markets Wrap
Zeno Markets 8
Stocks slid Monday and crude oil extended a rally as geopolitical risks over Ukraine rippled through global markets, supporting demand for havens such as sovereign debt and the Swiss franc.
An Asia-Pacific equity index fell over 1%, with markets from Japan to China and Hong Kong — which is also facing a Covid outbreak — in the red. Energy stocks bucked the trend, climbing as oil added to an eight-week winning run.
European futures slid and those for the S&P 500 and Nasdaq 100 were steady after Wall Street losses Friday. Treasuries mostly held gains from the end of last week, while bonds in Australia and New Zealand rose. The dollar was firm.
Tensions over Russia’s military buildup near Ukraine are entering a potentially decisive week, with the U.S. warning an invasion may be imminent and President Vladimir Putin accusing America of failing to meet his demands.
Russia has repeatedly denied it plans to invade its neighbor, and a diplomatic push to try to resolve the situation is continuing.
Heavyweight
Russia is a major supplier of key raw materialshttps://www.bloomberg.com/toaster/v2/charts/115df6fcdf7c408ca6ea691a989eb1c6.html?brand=markets&webTheme=markets&web=true&hideTitles=true
Source: JPMorgan
The uncertainty is dealing another blow to markets that are already skittish about inflation and the prospect of aggressive Federal Reserve interest-rate hikes to tame it. A deterioration in Ukraine could stoke concerns about price pressures if supplies of Russian energy and Ukrainian grain are disrupted.
A “flight to safety for all markets will be the first order” of fallout from any potential invasion of Ukraine, said Wai Ho Leong, strategist at Modular Asset Management in Singapore.
“The impact on inflation will go beyond oil and gas,” he said. “For the rest of the world, it is potentially a massive food shock — as Ukraine is a major exporter of grain — mainly corn and wheat.”
Bear-Market Risk
One question for investors is whether stocks forged lows for the year near the end of January or face more pain on Russia-Ukraine tension.
The January lows have a good chance of holding, Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets LLC, wrote in a note.
She added “there’s no past conflict that provides a good template for how low stocks could trade if an invasion occurs,” and signaled that a drop of as much as 20% from this year’s high could be a useful yardstick for the equity market.
Meanwhile, gold held a rally and palladium advanced. Russia produces around 40% of freshly mined palladium, a metal mostly used in catalytic converters.
Data-Dependent Fed
In the latest U.S. commentary, San Francisco Fed President Mary Daly said it’s paramount for the central bank to be measured and data-dependent as it starts lifting U.S. interest rates to ensure stability.
While the current standoff in Europe has fanned temporary demand for Treasuries, Ray Sharma-Ong, investment director for multi-asset solutions at abrdn plc in Singapore, said he sees inflation risks weighing more broadly.
U.S. inflation will likely peak in the April release and “as a result of that, markets will get jittery and price in a few more hikes,” he said.
Here are some key events this week:
- German Chancellor Olaf Scholz travels to Ukraine Monday and to Russia on the next day for diplomatic talks
- European Central Bank President Christine Lagarde participates in parliament debate on ECB annual report, Monday
- U.S. PPI, Tuesday
- EIA crude oil inventory report, Wednesday
- FOMC minutes, Wednesday
- China CPI, PPI, Wednesday
- G-20 finance ministers, central bank governors meet, Thursday through Feb. 18
- Cleveland Fed President Loretta Mester, St. Louis Fed President James Bullard speak, Thursday
- U.S. Monetary Policy Forum: speakers including Fed officials Charles Evans, Christopher Waller and Lael Brainard, Friday
Here are the main market moves:
Stocks
- S&P 500 futures rose 0.2% as of 6:21 a.m. in London. The S&P 500 fell 1.9% Friday
- Nasdaq 100 futures were steady. The Nasdaq 100 fell 3.1% Friday
- Japan’s Topix index fell 1.6%
- Australia’s S&P/ASX 200 Index added 0.4%
- South Korea’s Kospi index fell 1.5%
- Hong Kong’s Hang Seng Index lost 1.4%
- China’s Shanghai Composite Index fell 1.2%
- Euro Stoxx 50 futures declined 1.6%
Currencies
- The Japanese yen was at 115.39 per dollar
- The offshore yuan was at 6.3656 per dollar
- The Bloomberg Dollar Spot Index was steady
- The euro was at $1.1345
Bonds
- The yield on 10-year Treasuries rose one basis point to 1.95%
- Australia’s 10-year yield fell seven basis points to 2.14%
Commodities
- West Texas Intermediate crude rose 1.3% to $94.35 a barrel
- Gold was at $1,853.01 an ounce, down 0.3%
