The Russia-Ukraine tensions brew further amid a heavy buildup of the Russian military at the Ukrainian border. Money has been flowing out of the equity markets to more risk-off assets.
It was a not-so-good Valentine for the investors in the US equity markets amid the growing Russia-Ukraine tensions On Monday, Friday 14, the Dow Jones Industrial Average (INDEXDJX: .DJI) tanked another 170 points or 0.5% closing at 34,566 levels.
Similarly, the S&P 500 (INDEXSP: .INX) also tanked 0.4% while the Nasdaq Composite (INDEXNASDAQ: .IXIC) remained flat. The stock market continues to remain choppy amid the Russia-Ukraine tensions touching new highs. Moreover, the interest rate hike tensions are also putting pressure on the market.
Investors have been closely watching the news regarding the Russia-Ukraine conflict. President Joe Biden has asked the American citizens to leave Ukraine at the earliest. Besides, America has also decided to close its Kyiv Embassy. Secretary of State Antony Blinken has cited the “dramatic acceleration in the buildup of Russian forces” at the border. David Sneddon, technical analyst at Credit Suisse said:
“The outlook for global equity markets remains weak in our view, with markets under pressure not just because of rising bond yields globally and the prospect of rate hikes, but also geopolitical tensions”.
But surprisingly, the VanEck Russia ETF closed 2.5% up. Last Friday, the ETF had lost more than 7.5% with a strong correction in the Russian market.
However, oil stocks that outperformed last Friday in Ukraine-driven trading, remained under pressure on Monday. Exxon Mobil tanked 1.5% while ConocoPhillips slipped 2.1%.
The Fed Plans to Fight the Inflation More Aggressively
Amid the very 7.5% inflation data in January, the US Federal Reserve is pulling up its socks. The first interest rate hike for 2022 from the Fed shall arrive within a month’s time. St. Louis Fed President James Bullard said that the central bank has to fight inflation more aggressively. Speaking to CNBC’s Steve Liesman, Bullard said:
“I do think we need to front-load more of our planned removal of accommodation than we would have previously. We’ve been surprised to the upside on inflation. This is a lot of inflation. Our credibility is on the line here and we do have to react to the data. However, I do think we can do it in a way that’s organized and not disruptive to markets.”
He further added that the US inflation numbers are accelerating very fast. During the March meeting, analysts are expecting a 50 basis points or 0.5% increase.
Economists at Goldman Sachs believe that the Fed will hike interest rates seven times in 2022. Furthermore, it expects the 10-year US Treasury Yield to touch 2.25% this year.
Geopolitics will play a key role this year in 2022 as Russia gets closer to China, the common enemy of the two. Robert Cantwell, chief investment officer at Upholdings said:
“The real fear is that China backs Russia and the relationship between China and the US continues to deteriorate. How it changes the U.S. relationships with the other economic superpowers – that’s what’s really scary and would affect economic outcome.”