Stocks extended a selloff Wednesday as the war in Ukraine and sanctions on Russia triggered a record-breaking surge in commodities, darkening the economic outlook and bolstering demand for sovereign bonds.
An Asian equity index shed about 1%, dragged lower by Japan. US futures stabilized but continued to signal caution following a retreat on Wall Street Tuesday over the prospect of slowing growth alongside high inflation.
Demand for havens saw Australian and New Zealand debt join a global fixed-income rally. Treasuries held most of that push higher, with the 10-year yield at about 1.74%. Gold’s jump eased but the metal stayed near a 13-month high.
Russia’s invasion of Ukraine imperils flows of grain, energy and metals. The two accounts for more than a quarter of the global grains trade, and Russia is additionally rich in oil and gas. Wheat hit a 14-year high, Brent oil was near $ 110 a barrel and a commodity index jumped the most since 2009 to a record.
Economic risks are tempering expectations for how steeply the Federal Reserve will raise interest rates. Markets have priced out any risk of a half-point March liftoff. Traders in the UK and Europe have also dialed back rate-hike bets.
The war and increasingly harsh penalties on Russia are casting a shadow over the global recovery from the pandemic and putting the Fed and other central banks in a bind. Their challenge is to contain inflation without choking growth.
“The Fed is going to have to continue to tamp down inflation, which I think is invariably going to get worse before it gets better,” Kathryn Rooney Vera, head of global macro research at Bulltick LLC, said on Bloomberg Television. “We said stagflation is the biggest risk this year and that’s going to be the case.”
Russia said it would press forward with its invasion of Ukraine as the conflict enters a more brutal stage. At the same time, moves to isolate and pressure Russia’s financial system and economy are gathering steam.
President Joe Biden, in his first State of the Union address, said Russian counterpart Vladimir Putin “badly miscalculated,” called him a “dictator” and warned the war would leave his country weaker.
Among other key developments:
- European Union ambassadors agreed to exclude seven Russian banks from the SWIFT financial-messaging system but spared the nation’s biggest lender Sberbank PJSC and a bank part-owned by Russian gas giant Gazprom PJSC
- Russia’s central bank banned coupon payments to foreign owners of ruble bonds known as OFZs
- Apple Inc. halted product sales in Russia
- Glencore Plc, the world’s largest commodity trader, is reviewing business ties with Russia, while Exxon Mobil Corp. said it will “discontinue” its Sakhalin-1 crude operations in the Russian Far East
Meanwhile, Fed Chair Jerome Powell is due to speak to lawmakers later Wednesday. He’s expected to signal that the US central bank will go ahead with plans to hike rates this month.
“The market was looking at anywhere up to seven rate hikes this year – I think it will be closer to maybe the three or four we were anticipating at the very beginning of this conversation,” Uma Pattarkine, strategist at CenterSquare Investment Management, said on Bloomberg Television.
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:
- S&P 500 futures rose 0.2% as of 1:05 pm in Tokyo. The S&P 500 fell 1.6%
- Nasdaq 100 futures rose 0.2%. The Nasdaq 100 fell 1.6%
- Japan’s Topix index slid 2%
- Australia’s S & P / ASX 200 index rose 0.2%
- South Korea’s Kospi rose index 0.1%
- Hong Kong’s Hang Seng index fell 1.1%
- China’s Shanghai Composite index decreased 0.4%
- Euro Stoxx futures were 0.3% lower
- The Japanese yen was at 115.04 per dollar
- The offshore yuan traded at 6.3156 per dollar
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro was at $ 1.1118
- The yield on 10-year Treasuries rose one basis point to 1.74%
- Australia’s 10-year yield fell nine basis points to 2.10%
- West Texas Intermediate crude rose 4.5% to $ 108.05 a barrel
- Gold was at $ 1 935.48 an ounce, down 0.5%
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