Financial basis

Stocks and futures tumble as oil soars amid embargo risk: Concluding markets

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(Bloomberg) – U.S. stocks and equity futures fell on Monday, while havens, including sovereign bonds, rose, amid fears of an inflationary shock to the global economy as oil was skyrocketing in the run-up to a ban on the supply of Russian crude.

S&P 500 contracts fell 1.5%, Nasdaq 100 contracts fell around 2% and European futures fell around 3%. An Asian stock index was on track for a bear market — down more than 20% from a February 2021 high. Brent oil hit $139 a barrel and West Texas Intermediate $130 a barrel, before to reduce part of the rally.

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Secretary of State Antony Blinken said Sunday that the United States and its allies are considering a coordinated embargo following Russia’s invasion of Ukraine, while ensuring adequate global supplies. High energy prices threaten to dampen global growth, a risk that is rocking markets.

Grains, metals and energy surged on fears of supply disruptions from the invasion and sanctions on Russia that are turning the commodities powerhouse into a global pariah. Palladium and copper hit historic highs.

The euro fell – falling to par with the Swiss franc for the first time since 2015 – on worries about the economic prospects of Europe, which depends on Russian energy. Sovereign bonds and the dollar advanced, with the 10-year US Treasury yield falling below 1.70%, while gold touched $2,000 an ounce.

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

“For the US economy, we are now witnessing stagflation, with consistently higher inflation and lower economic growth than was expected before the war,” Ed Yardeni, president of Yardeni Research, wrote in a note. “For equity investors, we believe 2022 will continue to be one of the toughest years in this bull market.”

Fed Bank of Chicago President Charles Evans said on Friday the central bank is expected to raise interest rates to near its “neutral” level this year, implying up to seven hikes of a quarter of a point. Markets predict about five such moves in 2022.

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“Stagflationary shock”

“Central banks are facing an exogenous stagflationary shock against which they can do little,” Silvia Dall’Angelo, senior economist at Federated Hermes, wrote in a note.

In Russia, President Vladimir Putin signed a decree authorizing the government and companies to pay foreign creditors in rubles, seeking to avoid defaults as long as capital controls remain in place. The sanctions will determine whether international investors are able to collect payments, the finance ministry said.

More and more companies have abandoned their operations in Russia, including streaming giant Netflix Inc. and social media service TikTok, which is owned by Chinese company ByteDance Ltd.

The Swiss franc, a bolthole in times of stress, fell against the dollar after a member of the board of the Swiss National Bank said it was ready to step in to face a rapid strengthening.

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Worries over the war have overshadowed China’s signal that more stimulus is on the cards after authorities set a higher-than-expected economic growth target. Premier Li Keqiang pledged at the opening of the National People’s Congress to take bold measures to protect the economy from rising risks.

Here are some key events this week:

Briefing by Chinese Foreign Minister Wang Yi during the NPC, MondayChina trade, foreign exchange reserves, MondayApple new product event, Tuesday EIA crude oil inventory report, WednesdayChina overall financing, PPI, CPI, mass monetary policy, new yuan lending, WednesdayReserve Bank of Australia Governor Philip Lowe speaks, Wednesday and FridayEuropean Central Bank President Christine Lagarde briefs after the policy meeting, ThursdayU.S. CPI, first jobless claims, Thursday

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Some of the major movements in the markets:

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S&P 500 futures fell 1.6% at 10:47 a.m. in Tokyo. The S&P 500 fell 0.8% on Friday Nasdaq 100 futures lost 2%. The Nasdaq 100 fell 1.4% on Friday Japan’s Topix index fell 3.2% Australia’s S&P/ASX 200 index fell 1.2% Korea’s Kospi index South fell 2.4% China’s Shanghai Composite index lost 1% Hong Kong’s Hang Seng index lost 4%

Currencies

The Japanese yen was at 114.90 to the dollar, down 0.1% The offshore yuan was at 6.3286 to the dollar The Bloomberg Dollar Spot Index rose 0.4% The euro was at $1.0837 , down 0.9%

Obligations

The 10-year Treasury yield fell five basis points to 1.68% Australia’s 10-year yield fell six basis points to 2.09%

Merchandise

West Texas Intermediate crude jumped 7.5% to $124.33 a barrel Gold rose 1.3% to $1,997.37 an ounce

©2022 Bloomberg LP

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