Global markets plunge as oil price near $105 fuels inflation concerns

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Global Markets: A surge in oil prices sent shivers through risky assets on Tuesday, reversing an early rally in US stocks and sending some European markets down 4%. Bonds rallied amid concerns over the impact of war on global economies, with US 10-year yields posting their worst four-day drop since December.

In the final moments of trading, the S&P 500 fell more than 2% as Apple Inc. announced it had halted product sales in Russia. The Equity Gauge rebounded from session lows, while closing for a second straight day. Crude was trading near $105 a barrel, raising fears of potentially higher inflation that could complicate the Federal Reserve’s job at a time when Russia’s invasion of Ukraine is seen as a threat to global growth. . Bonds climbed, with swaps tied to the March 16 Fed meeting falling to 22 basis points of tightening. That suggests traders aren’t expecting even a full quarter-point rise – a contrast to last month, when a half-point move was almost fully priced.

“Investors are struggling to take long risks as the Russia-Ukraine crisis intensifies and soaring oil prices threaten economic growth prospects,” said Edward Moya, senior market analyst at Oanda. “The risks of stagflation have never been greater, and this should continue to fuel the many commodity super cycles that are running full steam ahead.”

Commodity prices have risen the most since 2009 as Russia’s invasion of Ukraine threatens key supplies of energy, crops and metals that were already tight when major economies emerged from the pandemic. President Joe Biden is under pressure from lawmakers in both parties to cut off US imports of Russian oil and gas. Such a move would likely push up gasoline prices, adding to inflationary pressures.

Biden will deliver his State of the Union address at 9 p.m. in Washington. Not since 2003, when George W. Bush made his case for war on Iraq, or 2010, when Barack Obama was faced with the financial crisis, has an American leader delivered his annual address to Congress in such a difficult time.

In the meantime, Fed Chairman Jerome Powell will try to reassure lawmakers this week that the central bank will act to rein in the highest inflation in four decades while remaining flexible in the face of geopolitical uncertainties. He is set to testify in semiannual monetary policy testimony before House and Senate panels beginning Wednesday.

More comments:

  • “The Russia/Ukraine conflict is pushing up oil and other commodity prices, presenting the possibility that inflation will stay higher for longer,” wrote Lindsey Bell, head of markets and currency strategist at Ally.
  • “We are grappling with the news cycle and how prolonged hostilities in Ukraine would slow economic growth,” said Larry Weiss, head of equity trading at Instinet. “It is believed that this slowdown would be the cause of less hawkish movements on the part of the Fed.”
  • Given the heightened uncertainty surrounding Ukraine, a half-point Fed hike “would simply be too aggressive at this time,” wrote Win Thin, global head of currency strategy at Brown Brothers Harriman.

Russia has said it will continue its invasion of Ukraine as the war enters a more brutal phase. European Union ambassadors agreed to exclude seven Russian banks from the SWIFT financial messaging system, but spared the country’s biggest lender, Sberbank, and a bank partly owned by Russian gas giant Gazprom.

U.S. stocks are off to another rocky start this year, as the prospect of rising interest rates and Russia’s invasion of Ukraine combine to test the mantra of “equities only rising.” “. The S&P 500 has posted back-to-back monthly declines. for the first time in almost a year and a half A silver lining for investors: Each of the last four times the gauge has closed lower through February, it has ended the year up by at least 9.5%.

What to watch this week:

  • Fed Chairman Jerome Powell testifies before Congress on monetary policy on Wednesday and Thursday
  • OPEC+ meeting, Wednesday
  • Eurozone CPI, Wednesday
  • Bank of Canada rate decision Wednesday
  • The ECB publishes the minutes of its February meeting on Thursday
  • U.S. unemployment, nonfarm payrolls, Friday

Some of the major movements in the markets:

Shares

  • The S&P 500 fell 1.5% at 4 p.m. PT
  • The Nasdaq 100 fell 1.6%
  • The Dow Jones Industrial Average fell 1.8%
  • The MSCI World index fell 1.4%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.4%
  • The euro fell 0.8% to $1.1134
  • The British pound fell 0.7% to $1.3328
  • The Japanese yen rose 0.2% to 114.81 per dollar

Obligations

  • The yield on 10-year Treasury bills fell 10 basis points to 1.73%
  • Germany’s 10-year yield fell 21 basis points to -0.07%
  • The UK 10-year yield fell 28 basis points to 1.13%

Merchandise

  • West Texas Intermediate crude rose 9.5% to $104.80 a barrel
  • Gold futures rose 2.6% to $1,949.70 an ounce.

This story was published from a news feed with no text edits. Only the title has been changed.

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