US and European futures are trading lower as investors continue to monitor the geopolitical tensions over in Ukraine. This is the third week for the global stock indices that are set to close in negative territory. All major US stock indices are well off their recent highs, and Nasdaq is close enough to its bear market while the DAX30 index is already in a bear market.
Discussions between Russia and Ukraine have broken down, with neither country’s foreign ministers making any headway on a possible cease-fire deal. The talks occurred a day after Russian soldiers shelled a maternity facility in Mariupol, killing three people, including a toddler, according to Ukrainian officials. Russian Foreign Minister Sergey Lavrov downplayed the “so-called massacre” but offered no evidence for his allegation that the hospital was under the influence of Ukrainian radicals.
The geopolitical tensions between Ukraine and Russia have made many companies exit their operations from Russia. For instance, earlier this week, we heard from companies like McDonald’s and Starbucks closing their operations in Russia without worrying about the cost. Yesterday, for the first time, we heard Wall Street giants making similar announcements as well. Goldman Sachs is the first Wall Street bank that announced that it would be closing all its operations in Russia and exiting the country. Following that announcement, JP Morgan also announced a similar decision. According to the corporation, JPMorgan employs less than 200 workers in Russia, most of whom work in the firm’s corporate and investment bank.
Basically, global technology, payments, and retail corporations have backed away from Russia, citing US sanctions aimed at putting economic pressure on the Russian government. The above stocks are likely to be highly volatile, and investors may want to keep a close on them.
Higher inflation in the US and worldwide remains a significant concern among investors and traders. Remember, the Fed always believed that higher inflation is only a transitory matter, but yesterday’s data once confirmed that the Fed has been stuck on the wrong side about their thinking of inflation. The US CPI data was much stronger than the expectation, and it was a clear reminder that inflation isn’t e transitory at all.
Inflation, according to Treasury Secretary Janet Yellen, will likely remain high for another year, and she suspects Russia’s invasion on Ukraine will lead to elevated costs. We’ve seen a pretty big spike in gas prices, and in her opinion, the US next month will see additional evidence of the impact of Putin’s assault on Ukraine on US inflation.
In addition to oil exports, Ukraine and Russia are also big wheat producers, and the current sanctions on Russia are only going to anchor the US inflation numbers. Yellen said yesterday that we’re seeing effects on food prices, which she believes will have a devastating impact on certain extremely fragile developing market nations.
Banning Russia’s oil is an immensely risky economic step that the US has taken because the current measure taken by the US government means that consumers will be facing much higher gas prices by the gallon when they will visit fuel stations.
Oil prices are immensely volatile, and it is widely believed now that oil prices are likely to remain anchored for a long period of time. There are a number of reasons for that. Firstly, there is labour shortage in the US across the energy sector, supply chain issues are still very anchored in place, and a frack sand shortage is another headache for the industry.
Although it is true that oil prices at current levels are highly attractive for the US producers to put resources to work, but many of the major players are determined to practice discipline this time as the lessons learned from the previous occasions have cost them a lot. Their shareholders are more interested in their companies to return more cash to them and invest extra cash in the renewable energy sector. Having said that, their financial discipline may be influenced, but again, bringing higher oil production and exploring more oil sweet spots will take time.
The only easy fix for banning Russian oil is to have more oil production from two countries in which the US doesn’t have great relations: Iran and Venezuela.
Bitcoin and cryptos continue to remain under pressure, and as we discussed earlier this week, there is still a lack of bullish momentum, and due to this reason, we do not see any serious moves in the Bitcoin price. Earlier this week, the Bitcoin price did move above the 40K price level, which brought some confidence back among crypto traders, but the fact that the price failed to break above the 45K price level and it has dipped below the important support level of 40K has confirmed that we are a long way away to see a bull rally for cryptos. Another critical point to notice is the strong positive correlation between cryptos and riskier assets. Investors only seem to be more interested in cryptos when they are backing the traditional equity markets. When they are running towards safe-haven assets such as gold, we begin to see cryptos moving to the downside.