Stocks, Futures Sink as Oil Soars on Embargo Risk: Markets Wrap

By Ti_Kes On Mrz 7, 2022

(Bloomberg) — Stocks and U.S. equity futures slid Monday, while havens including sovereign bonds rose, amid fears of an inflation shock in the world economy as oil soared on the prospect of a ban on Russian crude supplies.

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S&P 500 and Nasdaq 100 contracts fell over 1% and European futures some 3%. An Asian stock index was on course for a bear market — a drop of more than 20% from a February 2021 peak. Brent crude was up 8% after briefly touching $139 a barrel. Palladium and copper hit all-time highs.

Secretary of State Antony Blinken said Sunday the U.S. and its allies are looking at a coordinated embargo following Russia’s invasion of Ukraine. The Biden administration could also act alone. High energy prices threaten to stall global growth, a risk that is sending tremors across markets.

Grains, metals and energy have surged on concerns of chaos in commodity flows due to the invasion and sanctions on Russia that are turning the resources powerhouse into a global pariah.

The euro sank — dropping to parity against the Swiss franc for the first time since 2015 — on concerns about the economic outlook for Europe, which relies on Russian energy. Sovereign bonds and the dollar advanced, with the U.S. 10-year Treasury yield falling below 1.70%. Gold touched $2,000 an ounce.

The global economy was already struggling with high inflation due to pandemic-era effects. The Federal Reserve and other key central banks now face the tricky task of tightening monetary policy to contain the cost of living without upending economic expansion or roiling risky assets.

“For the U.S. economy, we now see stagflation, with persistently higher inflation and less economic growth than expected before the war,” Ed Yardeni, president of Yardeni Research, wrote in a note. “For stock investors, we think 2022 will continue to be one of this bull market’s toughest years.”

The worries about the war overshadowed China’s signal that more stimulus is on the cards after it set an economic growth target that topped forecasts. Stock markets on the mainland and in Hong Kong retreated.

Netflix, TikTok

In Russia, President Vladimir Putin signed a decree allowing the government and companies to pay foreign creditors in rubles, seeking to stave off defaults while capital controls remain in place. Sanctions will determine if international investors are able to collect payments, the Finance Ministry said.

More businesses pulled back on their operations in Russia, including streaming giant Netflix Inc. and social-media service TikTok, which is owned by China-based ByteDance Ltd.

The Swiss franc, a bolthole in times of stress, retreated against the dollar after a governing board member of the Swiss National Bank said it’s ready to intervene to tackle rapid strengthening.

Central banks face “an exogenous stagflationary shock they cannot do much about,” wrote Silvia Dall’Angelo, senior economist at Federated Hermes.

Here are some key events this week:

Apple new product event, Tuesday
EIA crude oil inventory report, Wednesday
China aggregate financing, PPI, CPI, money supply, new yuan loans, Wednesday
Reserve Bank of Australia Governor Philip Lowe speaks, Wednesday and Friday
European Central Bank President Christine Lagarde briefing after policy meeting, Thursday
U.S. CPI, initial jobless claims, Thursday

Some of the main moves in markets:

Stocks

S&P 500 futures fell 1.4% as of 12:38 p.m in Tokyo. The S&P 500 fell 0.8% Friday
Nasdaq 100 futures lost 1.9%. The Nasdaq 100 fell 1.4% Friday
Japan’s Topix index declined 2.9%
Australia’s S&P/ASX 200 index fell 1%
South Korea’s Kospi index dropped 2.3%
China’s Shanghai Composite Index shed 1.5%
Hong Kong’s Hang Seng Index lost 3.4%
Euro Stoxx 50 futures shed 3%

Currencies

The Japanese yen was at 114.92 per dollar, down 0.1%
The offshore yuan was at 6.3264 per dollar
The Bloomberg Dollar Spot Index rose 0.3%
The euro was at $1.0870, down 0.5%

Bonds

Commodities

West Texas Intermediate crude surged 7.6% to $124.45 a barrel
Gold rose 0.8% to $1,986.88 an ounce