Stocks, futures drop as oil soars on embargo risk: markets wrap

Gold rose 0.6% to $1 982.06 an ounce.
Image: Bloomberg

Stocks slid Monday along with European and US equity futures amid fears of an inflation shock in the world economy as crude oil soared on the prospect of a ban on Russian supplies.

S&P 500 and Nasdaq 100 contracts fell over 1% and European futures some 2.7%. An Asian share index was on course for a bear market — a drop of more than 20% from a February 2021 peak. Brent crude was up about 10% after briefly touching $139 a barrel. Palladium and copper hit all-time highs.

Secretary of State Antony Blinken said Sunday the US 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 natural gas have also surged on concerns of chaos in raw-material flows due to the invasion and sanctions on Russia that are turning the resources powerhouse into a global pariah. Commodity-linked currencies like the Australian dollar strengthened.

The euro sank — at one point dropping below parity against the Swiss franc — on concerns about the economic outlook for Europe, which relies on Russian energy. Treasuries and the dollar advanced, with the US 10-year Treasury yield falling to about 1.70%. Gold momentarily 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 US 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. The ruble was indicated 10% weaker in offshore trading at a record low.

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
  • US CPI, initial jobless claims, Thursday

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 1.1% as of 7:02 a.m. in London. The S&P 500 fell 0.8% Friday
  • Nasdaq 100 futures lost 1.6%. The Nasdaq 100 fell 1.4% Friday
  • Japan’s Topix index declined 2.8%
  • Australia’s S&P/ASX 200 index fell 1%
  • South Korea’s Kospi index dropped 2.3%
  • China’s Shanghai Composite index shed 2.2%
  • Hong Kong’s Hang Seng index lost 3.4%
  • Euro Stoxx 50 futures shed 2.6%

Currencies

  • The Japanese yen was at 115.03 per dollar, down 0.2%
  • The offshore yuan was at 6.3236 per dollar
  • The Bloomberg Dollar Spot Index rose 0.3%
  • The euro was at $1.0876, down 0.5%

Bonds

  • The yield on 10-year Treasuries declined two basis points to 1.71%
  • Australia’s 10-year yield fell one basis point to 2.14%

Commodities

  • West Texas Intermediate crude surged 8.4% to $125.29 a barrel
  • Gold rose 0.6% to $1 982.06 an ounce
© 2022 Bloomberg

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