Plummeting stocks, soaring commodity prices and tightening global financial conditions following Russia’s invasion of Ukraine are clouding the outlook for markets already unsettled by the prospect of a hawkish Federal Reserve.
Dramatic moves are everywhere you look, from a bear market in the Nasdaq Composite Index and wild rallies in oil and other raw materials to surges in popular haven assets such as gold and the US dollar.
Hanging over it all is the Fed, which is widely expected to raise rates at its monetary policy meeting next week for the first time in more than three years. Some investors now worry that the US central bank will have to keep raising rates to contain rising inflation despite an expected hit to growth from geopolitical instability, risking a recession.
“Traders are not used to this kind of volatility in markets,” said Michael O’Rourke of Jones Trading. “Everyone is trying to figure out what is the next threat and where the next distortion is.”
Sanctions against commodity-export giant Russia by the United States and its allies have stoked a rally in the price of oil, metals, wheat and other commodities, a move investors fear will exacerbate already high inflation while weighing on global growth – a condition known as stagflation.
Brent crude is up more than 25 percent since the beginning of March while nickel prices more than doubled on Tuesday, forcing the London Metal Exchange to halt trading in the metal.
“For the US economy, we now see stagflation, with persistently higher inflation and less economic growth than expected before the (Ukraine) war. A recession can no longer be ruled out,” strategist Ed Yardeni of Yardeni Research wrote in a recent note to clients. – Reuters
