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Ukraine Talks, Monetary Policies, Key Lockdowns are Moving the Markets

Asian stocks fell on Monday due to a plunge in Chinese shares first triggered last week. The sell-off was extended due to China’s close relationship with Russia, the risks the mainland companies may be under and the expansion of covid lockdowns ordered by officials. Meanwhile, Japanese shares climbed as investors are turning their attention to the next round of diplomatic talks for the Ukraine-Russia war scheduled for today, Monday. At the same time, Russian missiles hit a Ukrainian military training facility close to the borders with Poland causing worry over the conflict expanding outside of Ukraine.

Global Monetary Policies

US Treasuries fell, driving the five-year US yield above 2% for the first time in almost 3 years. The Federal Reserve is expected to start a round of rate increases to fight inflation on Wednesday. The possible rate increases came about due to the high inflation evident before the Russia-Ukraine conflict and the sanctions against resource-rich Russia which affected commodity flows. Policymakers will try to balance four-decade high inflation and the economic uncertainty emerging from the conflicts.
Central banks in Japan, Turkey and Brazil will also have policy meetings while the Bank of England is also expected to increase rates for one more time this week.

Oil Still Above $105

Crude oil prices fell following last week’s drop but still remained above $105 a barrel today, Monday. The decline was triggered by hopes for progress for the diplomatic meetings to end the war in Ukraine as well as investors preparing for higher US interest rates and the possibility of a stronger dollar. At the same time, the dollar went higher while commodity-linked currencies and gold fell.

Investors Rush to Commodities

Investors have shown a tendency towards commodities as Russia’s invasion of Ukraine has pushed the prices of raw materials to high levels. The war helped push oil prices to 14-year highs and natural gas prices close to record highs. The rising price have increased pressure on the Fed and other central banks to tighten their monetary policies to curb inflation. These moves could hamper economic growth further as increasing prices are already burdening consumers.

What to Watch out for this Week:

Tuesday
China one-year medium-term lending facility rate,
China economic activity data

Wednesday
EIA crude oil inventory report
FOMC rate decision
Fed Chair, Jerome Powell news conference

Thursday
Bank of England rate decision
ECB President Christine Lagarde, Executive Board member Isabel Schnabel, Governing Council member Ignazio Visco & Chief Economist Philip Lane’s speech at a conference

Friday
Bank of Japan rate decision