Stocks extended declines and oil prices for oil and other commodities soared on Monday as market participants consider the potential for even higher inflation and disruptions in energy markets stemming from Putin’s war in Ukraine and the sanctions imposed. Traders piled into safe-haven assets, with gold prices going over $2000 per ounce for the first time since September 2020.
- S&P 500 (SPY): -2.94%
- Nasdaq (QQQ): -3.70%
- Dow Jones (DIA): -2.39%
- Russell 2000 (IWM): -2.44%
- Volatility Index (VIX): +12.13%
- Tesla (TSLA): -4.02%
- Microsoft (MSFT): -3.78%
- Amazon (AMZN): -5.62%
- NVIDIA (NVDA): -7.26%
- Square (SQ): -9.02%
- Bed Bath and Beyond (BBBY): +34.61%
- Virgin Orbit (VORB): -21.92%
- Ruble/USD: -11.92%
In energy markets, Brent crude oil prices (BZ=F), the international standard, soared to as much as $137 per barrel, building on gains over the past several weeks while the U.S. West Texas Intermediate crude oil (CL=F) rose to as much as $130.50 a barrel.
The jump in energy prices comes as a growing bipartisan group of lawmakers released legislation on Thursday that would block imports of Russian oil despite President Joe Biden’s opposition to cutting off the shipments, setting up a potential standoff over how to ratchet up punishments against Moscow for its war on Ukraine. However, it is important to note that Germany and other European allies have rejected calls to embargo Russian oil, given how reliant the EU is on Russian oil and natural gas (Russian oil accounts for 26.9% of oil imports and 41.1% of natural gas imports).
The U.S. receives only a small portion of energy products from Russia, with just about 7.9% of total petroleum imports including crude oil coming from the country in 2021, according to the Energy Information Administration.
Prices for metals used in fuel cell batteries and other clean energy products including palladium and nickel also spiked as traders eyed an accelerated move toward renewable alternatives.
Jan Hatzius, an economist at Goldman Sachs, said “Russia’s invasion of Ukraine—and the Western response to it—will exacerbate the supply-demand imbalance that lies at the heart of the global inflation surge. Reducing trade with a current account surplus country via sanctions and boycotts means that the rest of the world needs to produce a larger share of what it consumes. If Western countries buy less Russian oil, China and India could in principle buy more Russian oil and correspondingly less Saudi and other oil, which can then flow to the West. But this ‘rearrangement of the deck chairs’ isn’t perfect, not only because of increased transport costs and other technical frictions.”
The spike in oil and other commodities have further stoked fears that inflation could continue rising, forcing the Fed to tighten more aggressively than originally intended. With inflation surging and the labor market recovering, it almost certain the Fed will raise the interest rate on March 16.
On Thursday, the Bureau of Labor Statistics is set to release its February Consumer Price Index, which economists expect will show a 7.9% annual rise for the largest jump since 1982. And given the latest set of commodity price increases this month, it is likely the real number will be higher than estimates.
Michelle Girard, NatWest co-head of Global Economics, said “We had thought that February was going to mark the peak. However, with the rise in energy prices that we’re seeing, I don’t think we can any longer assume that’s going to be the case. Certainly, with respect to the headline numbers, I think, it’s likely that we’ll continue to see upward pressure.”
- Mobileye, the self-driving unit of Intel (INTC), filed confidentially for an initial public offering on Monday, according to a statement from Intel. While Intel did not provide many details about the IPO, the deal could value the automotive tech unit at more than $50 billion, according to a report from Reuters. Intel first bought Mobileye for $15.3 billion in 2017.
- Shares of Bed Bath and Beyond (BBBY) spiked more than 90% premarket but was unable to hold gains during the session after Ryan Cohen disclosed a 9.8% stake in the company.
- General Motors (GM) and South Korea’s advanced materials company POSCO Chemical will build a facility in Canada to produce a key battery material for the U.S. automaker that has been ramping up its electric vehicle production.
- Warren Buffett’s Berkshire Hathaway disclosed a $5 billion position in Occidental Petroleum (OXY) last week, while Carl Icahn was selling. Carl Icahn, 86, meanwhile, was selling out of a sizable position dating back to 2019.
- Apple Inc will likely announce a new low-cost version of its iPhone SE with 5G capabilities at its annual spring product launch event tomorrow.
- Microsoft (MSFT) unveiled its fourth data center in India on Monday, betting on rising digital consumption in one of its fastest-growing markets.
- Netflix Inc has suspended its service in Russia to protest the country’s invasion of Ukraine, Variety reported on Sunday.
“The greatest glory in living lies not in never falling, but in rising every time we fall.” -Nelson Mandela