By Anna Peel. Originally published at ValueWalk.
Stocks struggle to stabilize as markets focus on Russia-Ukraine talks, Oil tumbles on Chinese shutdowns and as new sanctions leave Russian energy alone, Gold selloff exaggerated on profit-taking, Musk still hodling cryptos – OANDA
US stocks are trying to stabilize as investors await Fed tightening and as optimism over diplomatic efforts to end the war in Ukraine fades. Financial markets are still expecting the US economy to be in decent shape even as the economic impact from widespread pricing pressures continue. Hope that the war could end is being driven by Russian sanctions and expectations that being cut off from the rest of the world could cripple their economy. Earlier reports that Russia reached out to China for military equipment prompted speculation that the Kremlin might not be well positioned for a long war. That report was refuted by Chinese officials.
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The S&P 500 continues to hold the 4,100 level as traders remain confident that stocks will be able to handle global shock to commodities from the Russia-Ukraine war and a steady Fed tightening cycle. Even if the Fed hikes rates several times this year, the US economy is expected to handle that as the fundamentals for the consumer have not changed that much. The consumer is still benefiting from a strong job market and a built up war chest of savings, so they should still be able to handle the next few months of widespread price increases.
Wall Street is expecting between six and seven rate hikes this year and if a European recession drags global growth that could complicate how aggressive the Fed remains with tightening. Part of this week’s positive start is due to some positive comments from both Russian and Ukrainian that suggest talks have progressed. Ukraine delegation Podloyak noted that a technical pause in talks will occur until tomorrow.
Ukraine is pushing for an end to a war with an immediate Russian troop exit. The Russians are listening, and hopes that the current talks could lead to a ceasefire may seem to be too optimistic. The Russian’s continue to move forward with their military attack and that should cap any risk rebounds until a major de-escalation is confirmed.
The Dow Jones Industrial is the standout as investors gravitate towards financials, healthcare and consumer staples. Surging Treasury yields is crushing many technology stocks, sending the Nasdaq lower and that is weighing on the S&P 500 index.
Oil
Crude prices tumbled after Russia-Ukraine talks led to optimism an end to the war could be insight and as China lockdowns Shenzhen and Jilin. Energy traders quickly abandoned the crude trade after the next round of EU sanctions spared oil from Russian companies. Oil prices did not stand a chance as Russian crude exports still seem protected and on fears the short-term crude demand outlook will take a hit as China sticks to the ‘zero-COVID policy’.
The oil market still remains very tight and while optimism grows that a huge risk to the global economy could be removed, that won’t change short-term crude supply risk, so a pullback towards the mid-$90s is not yet warranted.
Gold
Gold prices got hit with an uppercut as geopolitical tensions somewhat eased and as investors brace for the beginning of Fed tightening later this week. Gold is a tricky trade right now and could be subject to further profit-taking as Wall Street tries to get a better handle on how high the Fed will take rates this year. Expectations are for somewhere between 6-7 rate hikes but the risk for more remains elevated until we see a confirmed de-escalation with the war in Ukraine, elevated commodities prices will continue to unleash widespread price increases going into the summer.
Gold selling could target the $1930 an ounce level, but that should be a level where buyers emerge. A quick resolution with geopolitical tensions seems unlikely and while the Fed will show they are tackling inflation, the Fed is not in a position to make aggressive calls on tightening until they have a better handle of the situation.
Cryptos
Cryptos got a nice little tweet from one of the more influential crypto investors, Elon Musk. The Tesla CEO tweeted, “As a general principle, for those looking for advice from this thread, it is generally better to own physical things like a home or stock in companies you think make good products, than dollars when inflation is high. I still own & won’t sell my Bitcoin, Ethereum or Doge fwiw.”
Musk’s tweet is a reminder that a lot of long-term hodlers are out there and that Bitcoin will likely see strong support ahead of the bumpy path that lies ahead as the Fed starts raising interest rates.
Cryptos across the board are in for a choppy period as investors await developments with Russia-Ukraine talks and if the Fed gives a clear path for interest rates that could possibly lead to a deeper bond market selloff.
Article by Edward Moya, OANDA
Updated on
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