Today’s volatility in stock markets has been due to Russia’s invasion of Ukraine.
The Dow Jones Industrial Average ( DMIA) is leading the charge, down more than 2% as of midday. After briefly turning positive in the session, the S&P500 is down 1.3% and the Nasdaq composite down more than 11%.
As Russia launches an aggressive offensive against Ukraine, traders are keeping an eye on oil and commodity prices. Crude futures briefly rose above $100 today, but then fell back to $96.
Mark Zandi (chief economist at Moody’s Analytics), stated to CNBC that it’s more about oil than the other, wheat palladium, nickel, and palladium. Due to the conflict, oil is likely up $10-15 per barrel.
If oil prices continue to rise, it could add $0.30 to $0.40 per gallon to gasoline prices. This could also add as much as half a percentage point to annual Consumer Price Index (CPI), which is currently running at 7.5%.
Stock Market Uncertainty over Oil and Fed Policy
The impact of Russia’s war on the economy is largely determined by the price of oil. High crude oil prices cause high inflation and slow down economies. The Fed’s decision on how aggressively it raises interest rates starting at the March FOMC meeting will also be affected by the oil price.
Experts had predicted these moves to reduce inflation. However, rising oil prices could make them questionable.
Loretta Mester, President of Cleveland Federal Reserve, stated today that she sees a number of Fed rate hikes as appropriate and that she still supports selling assets from the Fed’s balance sheet – a strategy known as quantitative tightening (QT).
Separately Raphael Bostic, Atlanta Fed President, also called for rate increases this year.
The Fed faces a difficult dilemma due to high inflation. Experts expect that the central bank will continue to raise the fed funds rate by quarter-point at its March meeting. The chances of a half point hike are rapidly decreasing.
Global Leaders Discuss Sanctions against Russia and NATO on High Alert
Boris Johnson, the U.K. The Prime Minister quickly stated that his government would impose the largest ever economic sanctions on Russia. This includes freezing assets at all Russian banks, cash restrictions in U.K. Banks, and sanctioning over 100 people and entities. Johnson also advocated for Russia to be kicked out of the SWIFT international payments system.
Currently, the European countries most at risk from Russian aggression other than Ukraine are on high alert. NATO member Lithuania declared an emergency and the U.S. sent more troops to Poland and the Baltic countries.
Make no mistake: we will defend every ally against an attack on every inch of NATO territory, stated Jens Stoltenberg, chief of NATO.
This afternoon, President Joe Biden will give a speech outlining America’s response to Russia’s aggression. NPR’s Adam Schiff, a Representative, stated that Congress will respond to Russia’s aggression in a “largely bilateral way”. He called for more resources for Ukraine and NATO as well as stronger sanctions.
Recent days have seen Germany suspend approval of the Nord Stream 2 pipeline from Russia. The E.U. has also been affected. has placed sanctions on Russian banks and defence institutions. The E.U. The E.U. is also trying to stop Russian access to the financial market.
Fed Flashed Warning Signs of CPI Inflation
According to the January CPI report, prices increased 7.5% year-over-year in January. This is the highest annualised CPI inflation growth since February 1982.
Only a small improvement was made by the core CPI component of the report, which strips out volatile energy and food prices. Core CPI increased 0.6% in January and grew 6.0% over 12 months. This is the largest increase since August 1982.
According to the Bureau of Labour Statistics, high inflation was caused by large gains in food and electricity, as well as shelter. The total price of energy rose 0.9% in December, while the 12-month gains were worryingly 27%.
