Stock Market Today
American and European futures are trading lower as investors digest the recent surge in oil prices. The global crude oil benchmark, Brent, rose to nearly $139 per barrel before falling back due to concerns that Western nations may impose sanctions on Russia’s oil supply. According to Secretary of State Antony Blinken, the United States and its allies are considering imposing a collaborative embargo in response to Russia’s military actions in Ukraine. The surge in oil prices to their highest level since 2008 sent jitters through global stock markets, with investors concerned about a rapid rise in consumer prices and the resulting slowing of global economic recovery.
The Dow Jones Industrial Average dipped 0.53% in Friday’s session, and the S&P 500 index dropped 0.79%. The Nasdaq, the tech-savvy index, fell 1.66%, while the Russell 2000 slumped 1.55%.
The week’s most important event is the inflation report, which is set to be released on Thursday. Inflation had been climbing globally even before the Russia-Ukraine war due to supply chain bottlenecks and rapid rise in demand as economies recovered from the coronavirus pandemic. As a result, the Federal Reserve decided to tighten its monetary policy by initiating tapering its massive bond purchases and kicking off interest rates as soon as March.
However, given the shift in market dynamics, it is unclear how aggressively the Fed will keep inflation under control in 2022. This uncertainty is fuelling stock market volatility as investors become more risk-averse, shifting away from growth and risky assets and toward stocks of value companies. Moreover, European stock markets may also be sensitive to the communication of the monetary policy statement by the European Central Bank (ECB).
Investors should recognize that we are in difficult times, with central banks facing stagflation that they are unlikely to reverse. Moving forward, the Fed faces a massive challenge in attempting to control inflation through contractionary monetary policies while avoiding a slowdown in economic growth and a stock market meltdown. As a result, stock traders should exercise caution when selecting stocks and investing in equity markets this year, as the stock market is expected to experience waves of volatility moving onwards.
According to Charles Evans, President of the Chicago Fed, the American central bank should work to raise interest rates until they reach a point close to neutral in 2022, suggesting that there could be seven quarter interest rate hikes this year. Currently, five interest rate hikes have been priced into stock markets.
Furthermore, the conflict between Russia and Ukraine will likely impact stock market performance in the coming weeks, if not months, as nations around the world try to deal with global supply chain constraints and sensitive international relations. Recently, Russian President Vladimir Putin allowed companies and the government to settle debts owed to international creditors in rubles to avoid defaults. Western nations have restricted the country’s capital movement. Furthermore, in response to Russia’s aggression towards its neighbour, several multinational corporations, including Shell, Netflix, and TikTok, have announced that their operations in Russia will be phased out.
Like the broader equity markets, cryptocurrency markets have also been bleeding over the last few weeks as investors avoid risky assets like the plague. As a result, the price of bitcoin, the king of cryptocurrencies, has fallen drastically and is currently trading below the crucial $40,000 mark. Investors should keep in mind that solid fundamentals still back the digital coins and institutional investors enter crypto markets with each passing day. This can be seen from the funding crypto companies have received this year in March alone.
Within the first week of March, capital amounting to nearly $1.34 billion had been pumped into crypto companies. As per PitchBook, the massive amount of capital invested came from more than 20 deals and funds. Electic Capital raised the most money, nearly $1 billion, for two funds. $600 million were raised for a token fund, while $400 million were raised for a venture fund.
Crude oil prices climbed rapidly following news that the United States is considering imposing embargos on Russian oil. Currently, oil demand is outstripping supply, and a further decline in oil supply from Russia, one of the biggest oil producers in the world, will likely worsen the situation. Moreover, talks between Iran and the United States of America face another problem with Russia demanding that the sanctions targeting it would not hurt its trade with Iran. However, Antony Blinken, U.S. Secretary of State, stated that sanctions imposed on Russia would likely not affect its nuclear deal conversations with Iran.
Due to the rise in stock market volatility due to the Russia-Ukraine conflict, gold prices have jumped because of its safe-haven appeal. The volatility index is currently hovering near 31 while gold prices are trading around $2,000 per ounce. Moving forward, investors should expect gold prices to remain fluid due to developments related to the war in Ukraine and the tightening of monetary policies by central banks around the world.
Like gold, the U.S. dollar index also climbed as investors rushed to the global legal tender to seek shelter from the highly fluctuating global financial markets. As a result, the dollar index rose to nearly 99, the highest level since May 2020. Moreover, in anticipation of the American inflation numbers and the European monetary policy set to be released later this week, the U.S. dollar and the euro may experience waves of volatility over the next few days.
Asian Pacific Markets
2021 has not been kind to China, the world’s second-largest economy, with the coronavirus pandemic and the slump in the country property market having a massive toll on its economy. As a result, China’s economic growth declined to nearly 4% in the last quarter of 2021. However, moving onwards, government officials in China have hinted more support to markets, as seen from its aggressive economic growth target of 5.5% while forecasts were 5%.