Stocks Fall, Oil Up as Ukraine Risks Spur Caution: Markets Wrap- ForexProp

ForexProp
14 Feb, 2022

Stocks slid Monday and crude oil extended a rally as geopolitical risks over Ukraine rippled through global markets, spurring demand for havens such as sovereign debt.

An Asia-Pacific equity index fell over 1%, with markets from Japan to China and Hong Kong -- which is grappling with a Covid outbreak -- in the red. Energy stocks bucked the trend, climbing as oil added to an eight-week winning run.

S&P 500 and Nasdaq 100 futures wavered after sharp Wall Street losses Friday. Treasuries pared gains from the end of last week, while bonds in Australia and New Zealand rose. A gauge of the dollar was steady.

Tensions over Russia’s military buildup near Ukraine are entering a potentially decisive week, with the U.S. warning an invasion may be imminent and President Vladimir Putin accusing America of failing to meet his demands.

Russia has repeatedly denied it plans to invade its neighbor, and a diplomatic push to try to resolve the situation is continuing.

The uncertainty is dealing another blow to markets that are already skittish about high inflation and the prospect of aggressive Federal Reserve interest-rate hikes to tame it. A deterioration in Ukraine could stoke concerns about price pressures if it disrupts Russian energy and Ukrainian grain supplies.

A “flight to safety for all markets will be the first order” of fallout from any potential invasion of Ukraine, said Wai Ho Leong, strategist at Modular Asset Management in Singapore.

“The impact on inflation will go beyond oil and gas,” he said. “For the rest of the world, it is potentially a massive food shock -- as Ukraine is a major exporter of grain -- mainly corn and wheat.”

Data Dependent

In the latest U.S. commentary, San Francisco Fed President Mary Daly said it’s paramount for the central bank to be measured and data-dependent as it starts lifting U.S. interest rates to ensure stability.

While the current standoff in Europe has fanned temporary demand for Treasuries, Ray Sharma-Ong, investment director for multi-asset solutions at abrdn plc in Singapore, said he sees inflation risks weighing more broadly.

U.S. inflation will likely peak in the April release and “as a result of that, markets will get jittery and price in a few more hikes,” he said.

In Japan, bonds got a boost as the central bank undertook unlimited purchases and traders returned from a long weekend to the risk-off mood in markets.

Here are some key events this week:

German Chancellor Olaf Scholz travels to Ukraine Monday and to Russia on the next day for diplomatic talks
European Central Bank President Christine Lagarde participates in parliament debate on ECB annual report, Monday
U.S. PPI, Tuesday
EIA crude oil inventory report, Wednesday
FOMC minutes, Wednesday
China CPI, PPI, Wednesday
G-20 finance ministers, central bank governors meet, Thursday through Feb. 18
Cleveland Fed President Loretta Mester, St. Louis Fed President James Bullard speak, Thursday
U.S. Monetary Policy Forum: speakers including Fed officials Charles Evans, Christopher Waller, and Lael Brainard, Friday

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Here is the Main Market Moves:

Stocks

S&P 500 futures rose 0.1% as of 11:59 a.m. in Tokyo. The S&P 500 fell 1.9% Friday
Nasdaq 100 futures rose 0.1%. The Nasdaq 100 fell 3.1% Friday
Japan’s Topix index fell 2%
Australia’s S&P/ASX 200 Index added 0.6%
South Korea’s Kospi index fell 1.5%
Hong Kong’s Hang Seng Index lost 1.1%
China’s Shanghai Composite Index fell 0.5%