New York, Tokyo The escalation in the Ukraine crisis also weighed on the American stock markets on Tuesday. All three major indices each lost more than one percent. The broad S&P 500 closed in correction mode at 4,305, more than 10 percent off its recent all-time high.
US President Joe Biden announced new sanctions against Russia shortly before the market closed. He spoke of “the beginning of a Russian invasion” of Ukraine and also prepared American companies and consumers for higher energy prices – even if he would do everything to ensure that the “measures are felt mainly in Russia and not in the USA”. , assured the Democrat.
Oil prices rose again significantly on Tuesday. The US crude oil grade WTI temporarily increased by 5.4 percent and at 96 dollars a barrel (159 liters) was as expensive as it was seven and a half years ago. The price of Brent crude oil from the North Sea rose by up to 4.3 percent on Tuesday to a seven-and-a-half-year high and scratched the $100 mark at $99.50 a barrel (159 liters).
The prices of other commodities also rose on concerns that further sanctions could lead to a loss of Russian exports. In addition to being a major exporter of oil and gas, Russia is also the largest exporter of wheat and palladium, as well as a major supplier of nickel and aluminum.
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Oil stocks failed to benefit from Tuesday’s surge in prices. Exxon lost 1.2 percent, Chevron closed 0.8 percent down. The aluminum group Alcoa lost 5.3 percent.
The leading index Dow Jones closed 1.4 percent weaker at 33,597 points. Nasdaq technology stocks closed down 1.2 percent at 13,381 points.
“The next few weeks are going to be choppy,” Stephanie Link, a portfolio manager at wealth manager Hightower, told CNBC. She is particularly concerned about rising oil prices “and how much they will affect demand and consumer sentiment.” After all, US consumers make up 70 percent of economic output.”
Two factors of uncertainty
Investors must now be prepared for two uncertainties. In addition to the crisis in Ukraine, the US Federal Reserve is about to turn around interest rates. As Fed Chairman Powell had already indicated, she could raise the key interest rate at the next meeting in mid-March. That could be the start of a whole series of rate hikes.
Some economists are now expecting nine rate hikes this year. It remains to be seen how the situation in Ukraine will affect the strategy of monetary policymakers. “It’s definitely going to complicate things for the Fed,” said Bruce Kassman, chief economist at JP Morgan Chase. However, he assumes that the Fed will hike rates by 0.25 percentage points in March as planned. Central bank circles are also discussing an increase of 0.5 percentage points.
Mohamed El-Erian, Allianz chief economic adviser, fears the Ukraine crisis could trigger stagflation, with prices rising but global economic growth slowing.
“Significant increases in oil prices have often led to recessions in the past,” independent capital markets strategist Ed Yardeni points out. He advises overweighting energy stocks. “They are a good hedge against inflation. This also applies to financial stocks, which benefit from rising interest rates – when there is no recession.”
In the medium term, Yardeni assumes that technology stocks will also pick up again. Eventually, companies need to arm themselves with technology to counter labor shortages and other trends.
According to the US bank Goldman Sachs, an open conflict with severe sanctions could push the US stock markets down another six percent. In the worst case, Europe and Japan could fall by nine percent.
Jim Reid, strategist at Deutsche Bank, points out that geopolitical tensions are typically associated with a 6% to 8% decline in the S&P 500. In his estimation, it would take around three weeks for stocks to bottom out – and then another three weeks for them to rise back to pre-crisis levels.
Asian and Australian stock exchanges open cautiously
Wednesday continued sentiment in the US and Europe in Australia and Asia. The markets there reacted “quite subdued” to the announcement of sanctions against Russia by the USA and Europe, the major bank told its Asian investors in the morning. And they apparently agreed with the assessment: With the exception of the Tokyo stock exchange, which is closed due to a holiday, all trading places opened at the previous day’s rate.
The Australian leading index S&P/ASX200 rose by 0.4 percent to 7187 points by 1 p.m. local time, the Korean Kospi index by 11 a.m. local time by 0.3 percent to 2716 points. The Nikkei Asia300, which mainly includes Southeast Asian stocks, as well as the Shanghai Composite Index and the Hong Kong Hangseng Index fluctuated with only slight fluctuations around Tuesday’s closing price.
The exception was Singapore, where the Straits Times index fell 0.6 percent to 3,379 points by then. But the city-state’s stocks had suffered far less from war fears than those in other Asian countries.
Asian companies with large European businesses will be penalized
But Europe moves investors further, Morgan Stanley notes in a new report: “As tensions between Russia and Ukraine escalate, there are growing concerns that this could impact the economic recovery and, in turn, stock performance in Europe.” Stocks that do a larger proportion of their business in Europe may be more affected than other stocks in the same region.
In Japan, the concern is already clearly reflected in the share prices of affected companies. According to the business newspaper Nikkei, companies such as the Japanese-German machine tool manufacturer DMG Mori, the tool manufacturer Makita, the bicycle supplier Shimano or Olympus, a large manufacturer of medical technology, lost around 15 percent in value from the end of December to the beginning of the week, while the Nikkei-225 index had dropped by only 6.5 percent.
Concerns about inflation and interest rate increases remain high
At the same time, global inflation and the reactions of the central banks are increasingly coming into focus again. New Zealand’s central bank is likely to raise interest rates further on Wednesday, while South Korea’s currency watchdogs, who initiated the turnaround in interest rates last year, will decide on their further course on Thursday.
The prospect of rising interest rates is further depressing sentiment. Sara Johnson, IHS Markit economist, for example, predicts that higher-than-expected inflation rates will prompt many central banks to raise interest rates earlier. “Global economic growth will continue in weaker form in 2022 and 2023,” she says.
Even in Japan, some investors and observers are speculating that the central bank, which has so far been the most patient of the mature industrialized nations, could move away from its de facto zero interest rate policy towards the end of the year. However, Naoki Kamiyama, chief strategist at Japanese investment advisor Nikko Asset Management, sees this as a pipe dream for foreign investors. “Domestic market participants should not share this view,” he says. Although the prices for various goods are also beginning to rise in Japan, “unlike in the USA, the inflation effect on the demand side is still missing,” says Kamiyama. In addition, central bank chief Haruhiko Kuroda has made it clear that interest rate hikes have not yet been discussed. “We therefore believe that a tightening of Japanese monetary policy will not be on the agenda in the foreseeable future,” says Kamiyama.
More: “It’s not the bottom yet” – Market uncertainty remains high