Futures in the United States and Europe are trading lower following the massive selloff witnessed in stock markets in yesterday’s session, with the Dow Jones Industrial Average falling nearly 800 points. The uncertainty and volatility in stock markets are being pumped by headlines about the Russia-Ukraine conflict, with investors fearing a rise in inflation owing to sanctions imposed on Russia and the American economy may face stagflation if the situation worsens. Although crude oil prices took a step back, they are still near the 14-year high, while European commodities such as wheat, gas, and nickel climbed higher.
In Monday’s session, the Dow Jones Industrial Average fell 2.37%, and the S&P 500 index dropped 2.95%. The Nasdaq, the tech-savvy index, dipped 3.62% while the Russell 2000 slumped 2.48%.
Today, investors will be digesting industrial production numbers from Germany. Moreover, Germany is considered the powerhouse of the European region, and its performance is closely looked at by investors and affects the European stock markets. The industrial production report basically shows the value of output, after adjusting for inflation, produced by mines, manufacturers, and utilities. This is an important metric used by investors to understand what the economy may look like over the next few months as manufacturing responds quickly to changing market dynamics. Typically, numbers coming in above expectations are considered a positive.
The biggest factor influencing the performance of stock markets continues to be the headlines regarding Russia’s aggression on Ukraine, along with harsh sanctions being implemented by the United States and its allies to push Russia’s back against the wall and potentially stop their military action from seeping into other European nations as well. The latest restriction being considered on Russia is banning imports of Russian oil, which has sparked panic in crude oil markets with oil prices rising rapidly and climbing above $130 per barrel.
On the other hand, Russia has responded to this development by threatening to curb natural gas supplied to Europe through the Nord Stream 1 pipeline. Hence, potential supply chain bottlenecks of energy and commodity supplies as a result of the war could push global consumer prices higher, despite tighter monetary policies being implemented by central banks around the world.
Moving onwards, the rise in inflation seems to be the biggest worry that investors are facing, while the outlook for growth is turning negative by the day, as can be interpreted by the small difference between yields on two-year and ten-year treasury bonds. This development is dragging investor sentiment down and adversely affecting all sectors. This is why, even when the stock prices of companies decline, stock traders seem to no longer be interested in purchasing the dip.
The price of bitcoin dipped below $38,000 on Monday, falling nearly 4%, while Ethereum, the second largest digital coin, dropped nearly 7%, spurred by the broader sell off in equity markets yesterday. Yesterday, investor sentiment suffered as investors reassessed the risks associated with the Russia-Ukraine conflict and likely projected that the war’s ramifications would last longer than previously anticipated.
Furthermore, cryptocurrency markets may experience additional volatility this week as President Joe Biden is set to sign an executive order outlining the American government’s strategy for catering to the blockchain space. The order will examine the regulatory changes required by the United States as well as how cryptocurrencies may affect the country’s national security.
Oil prices have rallied over the past few days, rising above $130 per barrel because of the risk of global oil supplies potentially taking a hit if sanctions are imposed on Russia’s oil. However, gains were capped by Germany’s stance that it is not looking to curb imports of energy from Russia. Likewise, even if the United States and some of its allies place a ban on Russian oil, these countries are looking to Gulf oil-rich countries to fill the gap.
Due to the volatility and uncertainty we are experiencing in global financial markets, demand for safe-haven commodities is rapidly rising as investors look to hedge their value of wealth from falling until the global macroeconomic situation stabilises to some extent. Investors are liquidating their positions in risky assets and are hesitant to pump more capital into equity markets. These dynamics have pushed the price of the yellow metals towards $2,000.
Investors should note that the industrial production numbers to be published today in Germany are likely to influence the euro. Moreover, just like gold, investors are finding the U.S. dollar more appealing under these circumstances, because the U.S. dollar index rose to its highest level in 22 months, touching nearly 99.22.
Asian Pacific Markets Just like the American stock market indices, major Asian-Pacific stock markets have also been under fire as investors are closely looking at how the Russia-Ukraine war could impact the growth of economies around the world. As of 01.21 a.m. EST, the Nikkei dipped 1.71% and the Shanghai index declined 1.29%. The Hang Seng index, in Hong Kong, slumped 0.56%. The ASX 200 index fell 0.83%, and the Seoul Kospi decreased 0.82%.