Futures in the United States are higher, while those in Europe are down, as investors brace themselves for a tumultuous week ahead, with geopolitical tensions rising and Ukraine at risk of being invaded by Russia. Despite Russia’s repeated declarations that it has no intention of invading and occupying Ukraine, tensions between the two countries are rapidly rising. Washington has urged Americans to leave the region as soon as possible, warning that an invasion could occur at any time. These events have increased demand for safe haven assets such as treasuries and gold, which act as hedges against increased market uncertainty and volatility.
Last week, the Dow Jones Industrial Average fell 1%, and the S&P 500 index dropped 1.8%. The Nasdaq, the tech-savvy index, slumped nearly 2%.
The last few trading sessions have been extremely volatile as investors reacted to last week’s inflation report, which showed that consumer prices rose nearly 7.5 %, the steepest uptick in inflation seen since 1982. Following the inflation report, stock traders are attempting to forecast how many interest rate hikes the Federal Reserve will likely make this year, and by how much. According to Goldman Sachs, there will be seven hikes this year, and ten-year Treasury bond yields will reach 2.25 % by the end of 2022. Over the next few months, markets are likely to price in a few more interest rate hikes as inflation is expected to climb until April. Hence, the prices of growth stocks are likely to remain volatile in coming months.
In addition to the negative inflation report, worries that an invasion of Ukraine by Russia is imminent have pumped waves of volatility in the markets, with investors expecting higher fuel prices and more supply chain bottlenecks as a result of the conflict. President Joe Biden had a conversation with his Russian counterpart, President Vladimir Putin, but their dialogue failed to bear any fruit. As a result of the conflict, various airlines have stopped flights to Ukraine, and the United States of America has ordered its troops to depart the region.
Cryptocurrency prices have come under pressure once again following an unfavourable inflation report released last week and growing tensions between Russia and Ukraine. The volatility index has surged to nearly 27.36, with investors acting cautiously with respect to investing in risky assets and favouring safe haven commodities. However, Bitcoin, the global benchmark of digital coins, is still above the crucial $40,000 level and is currently hovering around $41,500.
Despite the recent slump in Bitcoin prices, investment in the blockchain space is still on the rise, with nearly $1.19 billion pumped into the digital sector last week alone. Notable investments included Binance investing $200 million in Forbes, and the sale of a token worth $450 million by Polygon. The rise in interest in cryptocurrencies is because digital coins are backed by strong fundamentals, with institutional interest rapidly rising.
Investors should keep in mind that the conflict between Russia and Ukraine is likely to push crude oil prices above $100 a barrel sooner than earlier projected. The potential jump in oil prices depends on what sort of sanctions the United States of America and its allies are likely to impose on Russia if it actually invades its neighbour. Even before the conflict, oil prices were under pressure as demand was rapidly climbing because of the global economic recovery and supply-side constraints and lower inventories. The price of Brent crude oil is currently trading around $95.70 per barrel, while the price of WTI crude oil is nearly $94.61 per barrel.
The precious metal has gained support from the rise in volatility in stock markets because of a rapid rise in inflation and Russian-Ukraine geopolitical tensions. Investors are rushing to the yellow metal to shield themselves from the rise in uncertainty that is likely to put downward pressure on stock markets over the next few days. However, investors should understand that the rise in inflation means the Federal Reserve is likely to stick to its stance of raising interest rates as soon as March and may even increase the number of interest rate hikes it executes this year. This change in interest rates may likely force gold prices to retreat as the opportunity cost of holding it would increase as it is a non-interest-bearing asset.
Just like gold, the U.S. dollar also appreciated in value after Jake Sullivan, national security adviser at the White House, warned that Ukraine’s being taken over by Russia is very near. As a result, the dollar index jumped 96.07 points while riskier currencies like the euro depreciated. The surge in the U.S. dollar was because of its safe-haven appeal and expectations of interest rates being rapidly raised by the Federal Reserve following last week’s inflation report. Investors should note that today’s comments by FOMC member Bullard and European Central Bank’s President Christine Lagarde may affect the values of the U.S. dollar and euro, respectively.
Asian Pacific Markets
Asian Pacific stock markets are also broadly trading lower as investors closely monitor the Russian-Ukraine situation. Moreover, coronavirus cases in Hong Kong are surging, overwhelming the country’s hospitals. The city is now looking to mainland China for help in increasing its testing capacity and quarantine facilities.
As of 10.00 p.m. EST, the Nikkei dipped 2.62% and the Shanghai index slumped 0.48%. The Hang Seng index, in Hong Kong, declined 1.13%. The ASX 200 index climbed 0.36%, while the Seoul Kospi dropped 1.84%.