Markets Fluctuate Due To Tougher Sanctions Against Russia

Traders work on the floor of the New York Stock Exchange (NYSE) in Manhattan, New York, USA, March 7, 2022. REUTERS/Andrew Kelly

March 8 – Falling stocks, rising commodity prices and tightening global financial conditions in the wake of Russia’s invasion of Ukraine have clouded the outlook for markets already alarmed by the prospect of hawkish Fed policy.

Dramatic moves are happening everywhere you look, from bear markets in the Nasdaq Composite and wild rallies in oil and other commodities to surges in popular safe-haven assets like gold and the US dollar.

Hanging over it all is the Fed, which many expect will raise rates at its monetary policy meeting next week for the first time in more than three years. Some investors now fear that the US central bank will have to keep raising rates to contain rising inflation despite an expected blow to economic growth due to geopolitical instability, which could lead to a recession.

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

RAW RALLY

Commodity prices rose to nearly 16-year high

Sanctions by the United States and its allies against commodity-export giant Russia have fueled prices for oil, metals, wheat and other commodities. stagflation.

Brent crude has risen more than 25% since early March, while nickel prices more than doubled on Tuesday, forcing the London Metal Exchange to suspend trading in the metal. More

“For the US economy, we are now seeing stagflation with persistently higher inflation and less economic growth than expected before the (Ukrainian) war. A recession can no longer be ruled out,” wrote strategist Ed Yardeni of Yardeni Research in a recent note to clients.

THE APPEARANCE OF THE BEARS

Stocks around the world have been under selling pressure this year

The Nasdaq (.IXIC) fell 3.6% on Monday, dropping more than 20% from its recent peak, confirming that the index is in a bear market, as commonly defined. The German DAX (.GDAX) is also in bearish territory, while the benchmark S&P 500 index, which has fallen nearly 12% this year, has recently confirmed a correction.

SCREECHING PLUMBING

US financial stress indicator jumps to two-year high

Financial indicators show growing signs of stress in all markets. One is the so-called FRA-OIS spread, which measures the gap between a three-month agreement on the US forward rate and the overnight index swap rate. It was recently at its highest level since May 2020. read more

The higher spread reflects the growing risk of interbank lending or the accumulation of US dollars by banks, meaning that it is widely regarded as a proxy for banking sector risk.

According to Hugh Roberts, head of research at Quant Insight in New York, the dollar race has been the main reason for the dollar’s gains against the euro over the past two weeks.

More broadly, global financial conditions — an umbrella phrase for how things like exchange rates, capital fluctuations and borrowing costs affect the availability of finance in an economy — are the most challenging in about two years. More

HYRATION

Volatility of stocks, currencies and rates is at multi-year highs

Volatility in equities, currencies and rates is at multi-year highs as investors calibrate their portfolios in light of higher commodity prices and a potentially protracted conflict in Eastern Europe.

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

The sharp rise and fall in Treasury yields, fueled by bets on how aggressively the Fed will raise rates in 2022, as well as a flight to safety in US government bonds, have propelled the ICE BoFAML MOVE (.MOVE) index to its highest level yet. from March 2020.

Meanwhile, currency fluctuations and the strength of the US dollar pushed the Deutsche Bank Currency Volatility Index (.DBCVIX) to nearly a two-year high.

FLIGHT TO SAFETY

Reuters Graphics

Not surprisingly, investors took cover in gold, the dollar, the Swiss franc and other so-called safe-haven assets, pushing prices up to multi-month highs. Prices for the yellow metal are up more than 10% this year.

Reporting by Sakib Iqbal Ahmed and Ira Iosebashvili Edited by Mark Heinrich

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