Traders are assessing simmering geopolitical tensions over Ukraine and the US Federal Reserve’s policy decision.
Published February 14, 2022
Stocks faced another session of wild swings as traders assessed recent geopolitical developments amid concerns about a Federal Reserve policy blunder.
After some attempts at recovery, the S&P 500 posted its third straight decline. The gauge still closed session lows while the tech-heavy Nasdaq 100 closed higher. Government bond yields rose – with shorter maturities leading the rise. The move ushered in a resumption of curve flattening, with the gap between 2-year and 10-year rates narrowing. West Texas Intermediate crude surpassed $95 a barrel for the first time since 2014.
Ukrainian President Volodymyr Zelenskyy briefly spooked markets with what his office later said was meant to be a sarcastic comment about the rest of the world predicting a date for a Russian attack. Zelenskyy said it should be a day of unity instead. Vladimir Putin’s top diplomat, meanwhile, called on the Russian president to continue talks with the West, saying that the negotiating options are “far from exhausted”.
“If armed conflict between Russia and Ukraine is somehow avoided, a short-lived relief rally is likely, but there’s still too much worry on the horizon for a longer-lasting stock rally,” said George Ball, chairman of Sanders Morris Harris in Houston . “It’s time for investors to raise money. Cash is the ultimate king when markets are volatile.”
Investors have been jittery, with bets on the pace of rate hikes since the Fed’s January meeting, which have slipped to six or seven this year — from the three officials forecast in December. Strategists at JPMorgan Chase & Co., led by Marko Kolanovic, said global markets are pricing in an aggressive wave of monetary tightening this year that is unlikely to fully materialize – adding to the appeal of stocks tied to the economic cycle are.
Meanwhile, Fed Bank of St. Louis President James Bullard said Monday that the central bank needs to press ahead with rate hike plans to underscore its credibility in the fight against inflation. “I think we need to preload more of our planned removal of shelters than we would have done before,” he told CNBC.
It’s “hard to see a happy ending” for bonds in a scenario of rising interest rates, Oksana Aronov, a strategist at JPMorgan Asset Management, told Bloomberg Television. “We’re in a pretty hot mess. We are in the midst of the Fed’s latest policy blunder and concerned about its next policy blunder. Caution is the order of the day at the moment.”
Here are some notable events this week:
- US PPI, Tuesday
- EIA crude oil inventory report, Wednesday
- FOMC minutes, Wednesday
- China CPI, PPI, Wednesday
- G-20 finance ministers and central bank governors meet Thursday through February 18
- Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard speak Thursday
- US Monetary Policy Forum: Speakers including Fed officials Charles Evans, Christopher Waller and Lael Brainard, Friday
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Some of the key movements in the markets:
- The S&P 500 was down 0.4% as of 4 p.m. New York time
- The Nasdaq 100 rose 0.1%
- The Dow Jones Industrial Average fell 0.5%
- The MSCI World Index fell 1%
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.5% to $1.1296
- The British pound fell 0.3% to $1.3525
- The Japanese yen fell 0.1% to 115.58 per dollar
- The 10-year government bond yield rose six basis points to 2.00%
- The 10-year German government bond yield fell one basis point to 0.28%
- The 10-year UK government bond yield rose four basis points to 1.59%
- West Texas Intermediate crude was up 2% to $95 a barrel
- Gold futures rose 1.7% to $1,873.80 an ounce on support from Andreea Papuc, Abigail Moses, Emily Graffeo, Peyton Forte and Sophie Caronello.