There Is No De-Escalation Of The Conflict, Uncertainty In The Financial Markets Remains

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On Friday, the Dow Jones index (US30) decreased by 0.69% (-1.89% for the week), the S&P 500 (US500) lost 1.30% (-2.84% for the week), and the Nasdaq technology index (US100) fell by 2.18% (-3.64% for the week). All three major indices closed the week down. Last week the US CPI climbed to 7.9% year on year, the highest level since 1982. In his speech to Congress last week, Jerome Powell signaled that the Fed would raise interest rates by a quarter-point to combat rising inflation at its March 16 meeting. No more rate hikes of more than 50 bps are expected as Russia's invasion of Ukraine has sent commodity prices soaring and caused serious uncertainty in financial markets.

Many analyst houses are still inclined to believe that geopolitical concerns are likely to continue to overshadow the US stock market prospects. Tighter monetary policy will only increase the correction of indices. The US Federal Reserve now faces a huge challenge as the Fed will need to curb inflation, which has hit a 40-year high, by raising interest rates just enough to keep the economy out of recession. Twenty-five years ago, in 1994-1995, Alan Greenspan was already doing the same thing, combining harsh and moderate interest rate hikes to reduce inflationary pressures. But now, the situation is even more complicated due to the war in Ukraine, which brings additional uncertainties.

The main thesis of Joe Biden's speech on Friday:

  • Ban on exports of luxury goods from the United States.
  • Ban on imports of seafood, alcohol, and diamonds from Russia.
  • Stopped US free trade with Russia.
  • Russia will not get funding from the IMF and World Bank.
  • Biden will ban future US investment in any sector of the Russian economy.

Unlike the US indices, major European indices closed the week on the green territory. On Friday, German DAX (DE30) gained 1.38% (+8.04% for the week), French CAC 40 (FR40) added 0.85% (+6.33% for the week), Spanish IBEX 35 (ES35) jumped by 0.90% (+8.33% for the week), British FTSE 100 (UK100) increased by 0.80% (+2.41% for the week).

The war in Ukraine continues. But the Russian offensive forces are already significantly smaller than last week. Moreover, according to preliminary information, Russia opened 14 recruitment centers in Syria and gathered thousands of Syrian mercenaries for the war in Ukraine. In turn, the Ukrainian Foreign Minister appealed to the international court, which stated that all those who would be willing to fight against Ukraine, if they survive, will face trial for war crimes. The British Ministry of Defense said Russian navies had imposed a blockade of Ukraine's Black Sea coast, isolating the country from international maritime trade.

The Bank of Russia has decided not to resume trading from March 14 to 18, 2022 at the Moscow Stock Exchange in the stock market section.

Also, yesterday it became known that Iran fired at the US consulate in Iraq. The goal was to destroy "secret Israeli bases." Iranian media reported that the missile strike on Erbil was revenge for killing two Iranian officers in Syria by Israeli intelligence forces. There is also talk that Iran may close the Strait of Hormuz.

The massive rise in commodity prices may continue for a longer period, with analysts no longer believing in the imminent end of the war in Ukraine. The war and sanctions against Russia have pushed oil prices to a 14-year high and natural gas prices close to record highs. Wheat and copper prices are close to all-time highs, and last week's doubling of nickel prices forced the London Metal Exchange to suspend trading in the metal. The US government urges global producers to increase oil production to make up for the lack of supply. At the moment, there is talk of a potential increase in supplies from Iran, Venezuela, and the United Arab Emirates.

Gold and silver continue to rise in price amid the war in Ukraine and the geopolitical crisis. Investors buy precious metals as a defensive asset during financial turmoil. But investors should keep in mind that tighter monetary policy from the Fed is a negative factor for gold, so as soon as the conflict de-escalates, precious metal prices will start to decline sharply.

Asian markets also declined on the back of rising new inflationary risks due to Russia's attack on Ukraine over the past week. Japan's Nikkei 225 (JP225) fell by 1.84% over the week, Hong Kong's Hang Seng (HK50) lost 1.61% last week, and Australia's S&P/ASX 200 (AU200) fell by 0.94%. Japanese car giant Toyota stopped deliveries to the Russian market.

At the commodities market silver futures (+1.67%) and gold futures (+1.31%) showed the biggest gains last week. Futures on lumber (-11.57%), wheat (-8.44%), copper (-6.63%), orange juice (-5.88%), palladium (-5.8%), WTI oil (-5.7%), BRENT oil (-5.07%), natural gas (-4.94%) and platinum (-2.03%) showed the biggest drop.

Due to the transition of the US to daylight saving time, trading hours of some instruments have changed, as well as the release time of economic events.

Main market quotes:

  • S&P 500 (F) (US500) 4,204.31 -55.21 (-1.30%)
  • Dow Jones (US30) 32,944.19 -229.88 (-0.69%)
  • DAX (DE40) 13,628.11 +186.01 (+1.38%)
  • FTSE 100 (UK100) 7,155.64 +56.55 (+0.80%)
  • USD Index 99.13 +0.62 (+0.63%)

There are no important events for today.

Disclosure: This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, ...

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