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Markets stagnated as Russia sanctions intensify According to Reuters



© Reuters. Traders work on the exchange floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., March 7, 2022. REUTERS / Andrew Kelly

By Saqib Iqbal Ahmed and Ira Iosebashvili

Falling stocks, soaring commodity prices and tightening global financial conditions following Russia’s invasion of Ukraine are dimming the outlook for markets already jittery over the prospect of a new bureaucracy. Hawkish Federal Reserve.

Dramatic moves are everywhere you look, from the bear market in the Index and the violent rallies in oil and other raw materials to popular haven assets like gold and the US dollar. .

At the end of the day is the Fed, which is expected to raise interest rates at next week’s monetary policy meeting for the first time in more than three years. Some investors now fear that the US central bank will have to keep raising interest rates to rein in rising inflation despite the growth expected to be hit by geopolitical uncertainty, which threatens chance of a recession.

“Traders are not used to this kind of volatility in the market,” said Michael O’Rourke of Jones Trading. “Everybody is trying to figure out what the next threat is and where the next distortion is.”

RALLY INGREDIENTS

Sanctions against the Russian goods export giant by the United States and its allies have fueled a rally in the prices of oil, metals, wheat and other commodities, a move that worries investors fear of exacerbating already high inflation while hurting global growth – a condition known as stagnation.

up more than 25% since early March while nickel prices more than doubled on Tuesday, forcing the London Metal Exchange to halt trading in the metal.

“For the US economy, we are currently seeing consistently higher inflation and weaker-than-expected economic growth,” wrote Yardeni Research strategist Ed Yardeni in a recent note. pre-war (Ukraine).customers.

BEAR BEAR EMERGENCY

The Nasdaq fell 3.6% on Monday, 20% below its recent peak, confirming that the index is in a bear market, by one popular definition. Germany is also in bear territory, while the benchmark, down nearly 12% this year, recently confirmed a correction.

CREAKY PLUMBING

Financial indicators are showing signs of growing stress across markets. One of them is the so-called FRA-OIS spread, which measures the gap between the three-month US forward rate agreement and the overnight index swap rate. Recently, it was at its highest level since May 2020.

The higher spread reflects the increased risk of interbank lending or banks hoarding US dollars, which means it is viewed by many as a proxy for banking industry risk.

The rush to buy dollars has largely contributed to the greenback’s rally against the euro over the past two weeks, according to Huw Roberts, head of analytics at Quant Insight in New York.

More broadly, global financial conditions – the umbrella term for how indicators such as exchange rates, equity fluctuations and borrowing costs affect the availability of capital in the economy. economy – is at its tightest in about two years.

GYRATIONS

Volatility in stocks, currencies and rates is at multi-year highs, as investors adjust their portfolios to higher commodity prices and a possible conflict in Eastern Europe.

The Cboe, known as Wall Street’s fear gauge, was recently at 33 and is up about 16 points this year.

Sharp rise and fall (OTC:) Treasury yields – fueled by bets on how aggressive the Fed will be in raising rates in 2022 as well as a flight to safety on government bonds US, took the ICE (NYSE:) BoFAML MOVE Index to its highest level since March 2020.

Meanwhile, the change in currency and the recovery in the US dollar lifted Deutsche Bank (DE:) Currency Volatility Index hits almost two-year high.

FLY TO SAFETY

Unsurprisingly, investors took refuge in gold, the dollar, the Swiss franc and other so-called safe-havens, sending their prices to multi-month highs. The price of the yellow metal is up more than 10% this year.



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