Tensions between Russia and Ukraine continue to roil the markets, and U.S. stock futures are pointing to a down opening, albeit one significantly improved from overnight lows.
After months of accusations from the West and denials from Russia about an imminent invasion, Russian President Vladimir Putin announced yesterday that he was recognizing the independence of two separatist regions in Ukraine, the Donetsk People’s Republic and Luhansk People’s Republic. This was followed by Putin ordering military forces into those eastern regions. In response, U.S. President Joe Biden signed an executive order levying sanctions on the separatist regions, banning any new investment, trade, or finance by American citizens with regards to the two localities. Biden also indicated that these moves were separate from any additional measures that the United States and its allies have been preparing in anticipation of an invasion. According to reports, a senior Administration official also indicated that further sanctions could be announced as soon as today.
European leaders also responded with the threat of sanctions, citing the creation of the two new states as illegal. While the U.S. markets were closed yesterday in observation of the Presidents’ Day Holiday, trading on the European exchanges reflected the worsening situation. Stocks in France and Germany each fell about 2% in yesterday’s session, while the leading U.K. index managed to keep losses below 1%, as Russia’s actions far outweighed positive economic reports emerging from the European Union.
The biggest fear for the markets is that a full-on invasion will trigger a steep selloff for stocks and propel oil prices even higher. The latter would only further fan the flames of inflation, which, in turn, could prompt the Federal Reserve to take more strident steps in raising interest rates, thereby increasing the risk of a potential recession.
In overseas trading, stocks in Asia closed down overnight, while European stocks recovered to just around breakeven. On our shores, the futures for the Dow Jones Industrials, S&P 500, and the NASDAQ are all showing relatively small declines, marking a significant improvement from overnight levels, which saw all three down 1%-2%. Meanwhile, oil futures are up nearly 3%, to around $93.7 a barrel, their highest level since September 2014.
This week’s economic schedule includes the Federal Housing Finance Agency House Price Index for December, out today, followed by initial jobless claims, the latest revision on GDP for the fourth quarter, and New Home Sales for January on Thursday, as well as the latest figures on personal consumption and core inflation, pending home sales, and others on Friday.
Meanwhile, earnings season for Corporate America is starting to wind down, but a few big names will be reporting this week. These include Lowes (LOW) and eBay (EBAY) on Wednesday, as well as Moderna (MRNA) on Thursday. However, it is doubtful that any economic or business reports will outweigh developments with Russia and Ukraine over the days and weeks ahead.
– Mario Ferro
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
