Inspiring determination to resist Putin's aggression, matters to markets, it also matters to nations, and importantly to principles that unite people, rather than divide, as had been going on, even in our own country. 

Pixabay

Thus, in a sense, as tragic as the horror is, Ukraine's grit revives reality to some obsessed with relative trivia that in normal times would be more (or too much of) a focus.

Now, in the last couple days we had oil decline, some think because of some possible progress toward a 'ceasefire' in Ukraine, based on rumors I heard of a multi-point agreement being worked-out between Russia and Ukraine. Yes I hear some of that is unacceptable, but that's still part of the negotiation.

And we also must reflect on the Fed, the dramatic down-up swing I suspected was possible on my 2 o'clock balloon comment, and even a big earthquake in Japan.. 7.3 in of all places Fukushima. Mostly this day was a well-received video link speech to Congress by Ukraine's President Zelensky, new pledges of aid from President Biden, but he still hasn't stepped-up boldly as many are insisting he must. Meanwhile Russia is reinforcing it's forces deployed there, along with ongoing brutality (like bombing a theater with visible signs of 'kids'.) I'm disappointed millions of Russians haven't simultaneously emerged to stop Putin, to take back their country, as they did when the Soviet Union failed.

My point is that (despite nobody wanting to hear about it), COVID contributed to the oil shakeout, which we thought likely anyway after unsustainable spike moves higher, which may be temporarily stabilizing about now. Sobriety about 'demand' was the heart of the pullback, based on COVID overrunning China. That, and higher inventories at Cushing OK, imply contracting demand for oil.

The supply-chain issues are further prolonged by the port and city shutdowns in China, and Foxconn / Apple, are just part of it. The Fed hiking rates is fine, and long overdue, while the supply-chain issues promote inflation, as declines in oil 'sort of' take the edge off the higher prices pressures to a degree, even if just temporarily. It's hard to gauge this, but neither COVID in China, nor war, are going to be eclipsed by a Fed hiking rates more. Or even if they didn't.

The pain for delayed action (in either direction) by the Fed has been felt in the past, as they tried to get in-front of whatever situation prevailed at the time. Of course 2008 was such a situation (I had forewarned in 2007's 'Epic Debacle' call of a plunge, well before Bear Sterns much less Lehman, because I heard of all CMO's (collateralized mortgage obligations) stunningly being improperly rated investment-grade at major brokerage firms for 'net capital requirements'. (Under FINRA/NASD regulations, that was not acceptable, hence concern.)

The Fed was late to the rescue then, and they are late to the restrictions now, which amplifies the impact on markets. Yes we can see the monetary policy in a vacuum (ignoring China and war or even oil), but they shouldn't. We were out of the 'emergency' status for stimulus about a year ago, and that's when a snugger Fed was needed (at the time I emerged from COVID hospitalization). It is totally political that the Fed has to come from 'negative rates', adjusted for a rapid inflation, and now needs a series of moves to stabilize monetary policy.

It is not as big a deal for the market as some think, because they are not (yet) draining the balance sheet big time. Also because of the war the dollar has retained strength, despite years of 'pundits' calling for dollar decline (ponder if they're doing China and Russia's work for them, trying to 'bear' the dollar). Of course I understand, and said it got temporarily extended and would ease, but also have been a dollar bull for years, and remain so allowing for setbacks.

Additionally, the sanctions on Russia and quizzical behavior by China, foster reduced interest in anyone participating in their 'wannabe' reserve system as they try (rather wish) to replace the dollar-centric global economy. Shame on Saudi Arabia for even entertaining doing oil sales in Chinese yuan vs. dollars and I often mention the Saudi's are not really our friends, stop catering to the sheiks of Arabia. Multiple times that about Iran, geez. Energy independence is easily revived in the United States, and needs to be an immediate priority.

In-sum: 

The Fed's trying to move off of 'non-restrictive' rates, despite doing so is highly speculative. There are monumental changes going on globally now. A part relates to China, somewhat relates to how the war goes and radiates to political policies internationally, while of course the low rates were entirely the pandemic response, which is why we suggested they move off that long ago.

Hence I suspect the prospects of the Fed fulfilling these more-hawkish goals are not only debatable, but flexible depending on many intervening factors. It may well be that the Fed will have to constrain their zeal, but it's unlikely. So despite the suspected late short-squeeze and earlier upside on the back of an improved tone in China related to tech sectors, the really is perfectly placed of course (we needed it off lows preceding days ago) although likely runs-into at least some resistance, or consolidation, perhaps right away to 'test' resolve.

Markets are forward-looking, the Fed has already effectively lifted-off low rate policies, tardy as they are. It may not be the right plan, but with uncertainties so high, and so many variables, that's exactly why they needed maneuvering room to 'ease' if needed, and their 'stated' approach doesn't reveal that yet.

The Fed cannot control everything, especially the laughable 2% inflation goal (which shouldn't even have existed, their mandate is stability, not inflation as I noted often last year). The Fed did a lot of talking, not acting. So now we'll get a series of hikes at each meeting, with some flexibility depending on events.