Last week, US consumer prices rose to higher-than-expected levels sending shocks through the markets. Inflation rose to 7.5% and recorded its fastest yearly rise in 4 decades. The Fed released its bond-buying schedule for March and left it unchanged. The central bank will start increasing its interest rates after its buying stops.
The U.S. dollar was up in Asia’s morning trading session. Safe-haven currencies held gains while riskier currencies faced difficulties in holding onto them. Investors’ sentiment was defined by rising inflation and a potential war in Eastern Europe.
The Euro fell below its previous week’s high of $1.1495. At the same time, the Australian and New Zealand dollars also stayed below their previous week’s levels while the Russian ruble recorded its biggest plunge in almost two years on Friday.
Stocks fell on Monday due to tensions in Eastern Europe caused by a possible Russian invasion in Ukraine. The tension supported demands for safe-haven assets such as sovereign debt.
European futures fell while S&P 500 and Nasdaq 100 futures remained steady after the losses recorded in Wall Street on Friday. Treasuries mostly kept their end of last week’s gains. Bonds in New Zealand and Australia went up.
“Heated” Eastern Europe
Russia is gathering troops near Ukraine while denying it plans to invade the country and diplomatic attempts to resolve the tense situation are continuing. This causes uncertainty in the markets that’s struggling to deal with high levels of inflation and the possibility of aggressive Federal Reserve interest rate hikes to handle it. An invasion in Ukraine could add further pressure on prices as Russian energy and Ukrainian grain supplies could be disrupted.
Oil is headed towards $100 a barrel for the first time since 2014. This could push inflation to higher levels and hinder global economic growth. Inflation levels are already concerning central banks around the globe as they are on track to tighten their policies to counter increasing prices.
Gold keeps being on an upward track while palladium went up. The rise in the metals has been supported by tensions between Ukraine and Russia and high inflation levels. The unstable geopolitical situation and rising prices are increasing demand for store-of-value safe-haven assets such as gold. At the same time, demand is pushed further as concerns over potential supply disruptions are multiplying. Russia produces about 40% of newly mined palladium – a metal used for producing catalytic converters.
What to Watch out for this Week:
German Chancellor Olaf Scholz travels to Ukraine
German Chancellor Olaf Scholz travels to Russia for diplomatic talks
EIA crude oil inventory report
Start of G-20 meeting
Cleveland & St. Louis Fed Presidents’ speeches
US Monetary Policy Forum