US equities are off to another rocky start this year as prospects for higher interest rates and Russia’s rising invasion combine to put the ‘stocks-only-go-up’ mantra to the test.
A surge of more than 10% in oil sent shivers through risky assets Tuesday, reversing an early recovery in American stocks and sending some European markets down 4%. Bonds rallied amid concern about the impact of war on global economies, with 10-year US yields posting their worst four-day drop since July.
Equities pushed lower as a jump in crude above $ 105 a barrel raised fears about higher inflation that could complicate the Federal Reserve’s job at a time when Russia’s invasion of Ukraine is seen as a potential threat to economic recovery. Bonds climbed across the curve, led by short-dated tenors, with swaps linked to the Fed’s March 16 meeting pricing in about 25 basis points of tightening. Oil soared even as the US and other major economies agreed on a coordinated release of stockpiles.
Fed Chair Jerome Powell will try to reassure lawmakers this week that the central bank will act to curb the hottest inflation in four decades while remaining flexible in the face of geopolitical uncertainties. Powell – in a semiannual monetary-policy testimony to House and Senate panels starting Wednesday – is likely to signal the Fed will go ahead with plans for raising rates in March.
As penalties against Russia continued, the European Union identified seven Russian banks it’s considering excluding from the SWIFT messaging system. The nation banned residents from transferring hard currency abroad as President Vladimir Putin sought to counter the fresh sanctions walloping the economy. The European Union and Switzerland approved measures against some of Russia’s wealthiest tycoons, and Britain told ports not to service Russian-flagged vessels.
President Joe Biden delivers his State of the Union speech at 9 pm in Washington. Not since 2003, when George W. Bush laid out his case for war against Iraq, or 2010, when Barack Obama was confronting the financial crisis, has a US leader delivered his annual address to Congress at such a fraught moment.
US equities are off to another rocky start this year as prospects for higher interest rates and the rising invasion of Ukraine combine to put the “stocks-only-go-up” mantra to the test. The S&P 500 saw back-to-back monthly declines for the first time in almost a year and a half, bringing its losses this year to 8.2%, its worst start since the pandemic roiled markets to begin 2020. One ray of hope for investors : Each of the last four times the S&P 500 closed lower through February, it finished the year higher by at least 9.5%.
What to watch this week:
- Fed Chair Jerome Powell testifies to Congress on monetary policy, Wednesday and Thursday
- OPEC + meeting, Wednesday
- Eurozone CPI, Wednesday
- Bank of Canada rate decision, Wednesday
- ECB publishes the account of its February meeting, Thursday
- US unemployment, nonfarm payrolls, Friday
Some of the main moves in markets:
- The S&P 500 fell 1.5% as of 12:17 pm New York time
- The Nasdaq 100 fell 1.3%
- The Dow Jones Industrial Average fell 1.9%
- The MSCI World index fell 1.5%
- The Bloomberg Dollar Spot Index rose 0.5%
- The euro fell 1.1% to $ 1.1099
- The British pound fell 0.8% to $ 1.3309
- The Japanese yen rose 0.1% to 114.88 per dollar
- The yield on 10-year Treasuries declined 12 basis points to 1.71%
- Germany’s 10-year yield declined 21 basis points to -0.07%
- Britain’s 10-year yield declined 28 basis points to 1.13%
- West Texas Intermediate crude rose 11% to $ 105.83 a barrel
- Gold futures rose 1.8% to $ 1,935.70 an ounce – With assistance from Andreea Papuc, Robert Brand, Matt Turner, Divya Balji, Lu Wang, Isabelle Lee and Vildana Hajric.