Russia/Ukraine Conflict Continues to Pressure Sentiment…..
U.S. equities tumbled, as the global markets remained on edge by the ongoing war in eastern Europe. Skittishness remained as an already sizzling inflation backdrop is being amplified by the continued spike in oil prices, and how the ongoing conflict will affect the global economy. The Russia/Ukraine war is also fostering uncertainty regarding how the Fed will respond with monetary policy as it is set to begin its rate hike campaign next week. News on the economic front was light, but consumer borrowing came in well short of expectations. Treasuries saw some pressure to lift yields after last week’s rally that weighed on rates, and the U.S. dollar extended a recent run, while gold continued to rally. M&A news dominated the headlines, with Cornerstone Building Brands agreeing to be acquired by affiliates of Clayton, Dubilier, and Rice, while Oasis Petroleum and Whiting Petroleum Corporation announced a merger of equals, while Uber Technologies raised its Q1 guidance. Markets in Europe and Asia finished with widespread losses.
The Dow Jones Industrial Average declined 797 points (2.4%) to 32,817, the S&P 500 Index lost 128 points (3.0%) to 4,201, and the Nasdaq Composite tumbled 482 points (3.6%) to 12,831. In very heavy volume, 6.8 billion shares of NYSE-listed stocks were traded, and 6.1 billion shares changed hands on the Nasdaq. WTI crude oil advanced $3.72 to $119.40 per barrel. Elsewhere, the gold spot price traded $34.50 higher to $2,001.10 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.5% at 99.17.
Volatility continued as Russia’s intensified attack on Ukraine remained a major source of uncertainty. The U.S., European Union, and other global allies have broadly condemned Russia’s invasion and swiftly responded with unprecedented sanctions aimed at crippling the country’s ability to maintain financial system stability and cutting off Russia from participating in the global economy. The measures included restricting some financial institutions from using the SWIFT global payment system and freezing assets and foreign currency reserves of its central bank. The sanctions have yet to target Russia’s exporting activity of energy, materials and agriculture, but self-imposed sanctions among global importers of Russian commodities have ensued to further hamstring the country’s trade activity. However, given the global influence of Russia and Ukraine on energy and agriculture, already sizzling inflation concerns have shot up to a new stratosphere to unnerve the markets. Meanwhile, Russia and Ukraine held a third round of talks that didn’t resolve with a positive outcome.
Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $6.8 billion during January, well short of the $24.5 billion forecast of economists polled by Bloomberg, while December’s figure was adjusted upward to $22.4 billion from the originally reported $18.9 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, was $7.0 billion, a 2.5% increase year-over-year (y/y), while revolving debt, which includes credit cards, was $200 million, a 0.3% y/y decline.
Treasuries were lower and yields rose after last week’s flight-to-safety that put some heavy downside pressure on yields. The yield on the 2-year note gained 4 basis points (bps) to 1.53%, the yield on the 10-year note increased 5 bps to 1.78%, and the 30-year bond rate was 3 bps higher at 2.18%.
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