Growing geopolitical tensions in eastern Ukraine cause market panic

The US stock indices closed in the red zone on Friday. By the close of the stocks market Dow Jones (US30) decreased by 1.43% (-1.05% for the week), S&P 500 (US500) fell by 1.90% (-1.93% for the week), NASDAQ technology index (US100) lost 2.58%, becoming the worst performer of the week (-2.32%) among the US indices. All three major indices closed the week with losses.

The Fed's balance sheet hit a new record high of $8,878 billion. Total assets increased by another $4.8 billion. Investors expect the Fed to act more aggressively in monetary policy. The probability of an immediate 0.5% interest rate hike at the Fed's March meeting increased to 90%. In addition, some Fed officials are already advocating quantitative tightening for the Fed to lower the balance sheet. Goldman Sachs has lowered its S&P 500 target at the end of 2022 to 4,900 from 5,100 due to rising rates and lower valuations.

Growing geopolitical tensions in eastern Ukraine and record inflation in the US are causing panic in financial markets. Russian President Vladimir Putin and US President Joe Biden spoke by phone on Saturday in an attempt to de-escalate the crisis. The White House said Biden "made it clear that if Russia undertakes any further invasion of Ukraine, the United States, along with allies and partners, would respond decisively and strike Russia swiftly and seriously." Many analysts believe that in the event of an invasion, energy prices are expected to surge, which could send the price of oil above the $100 per barrel threshold for the first time since 2014. Beyond oil, Russia's role as a key supplier of natural gas to Western Europe could spike prices in the region. Overall, analysts say a sharp rise in energy prices in Europe and worldwide would be the most likely way a Russian invasion would cause volatility in financial markets.

The Foreign Ministries of more than 20 countries have warned their citizens to leave Ukraine as soon as possible. The Embassy of Canada in Kyiv has temporarily suspended work and is moving its office to western Ukraine. Australia is evacuating its ambassadors from Ukraine. The Dutch airline KLM has temporarily suspended flights to Ukraine, while Lufthansa is considering doing the same.

Ukraine may abandon its application to join NATO in order to avoid a war with Russia, Ukraine's ambassador to the UK, Vadym Prystayko, said on BBC Radio 5.

The US is whipping up hysteria around a "war" with Russia to stop Nord Stream 2, David Hendrickson, professor of political science at Colorado College, wrote in an article titled "Why Washington Is Crazy About Ukraine," published in the National Interest magazine.

European stock indices also closed Friday in the red zone amid rising geopolitical tensions in Eastern Europe. German DAX (DE30) decreased by 0.42% (+1.35% for the week), French CAC 40 (FR40) fell by 1.27% (+0.35% for the week), Spanish IBEX 35 (ES35) lost 0.99% (+1.73% for the week), British FTSE 100 (UK100) fell by 0.15% on Friday, but ended the week with growth +1.92% and was the gain leader among European indices.

Gold prices rose nearly 3%, and silver added 5% last week, as fears of geopolitical tensions in Ukraine boosted demand for metals as a safe-haven asset. Betting that inflation will remain high also boosted gold prices.

Asian markets traded flat on Friday. Japan's Nikkei 225 (JP225) increased by 0.42% (+2.22% for the week), Australia's S&P/ASX 200 (AU200) lost 0.98% (+1.36% for the week), and Hong Kong's Hang Seng (HK50) decreased by 0.07% (+1.21% for the week).

According to The Korea Times analysts, NVIDIA's final refusal to buy the British chipmaker Arm due to the concerns of regulators around the world and the dissatisfaction of major market players will hurt Samsung Electronics' plans to expand its semiconductor business through the acquisition of smaller companies. At the same time, experts do not exclude the possible pressure of the failed deal on the entire industry.

At the commodities market, futures on lumber (+13.94%), silver (+5.01%), corn (+4.75%), coffee (+4.65%), wheat (+4.59%), cocoa (+3.16%), and gold (+2.92%) showed the biggest gains by the end of the week. Natural gas futures (-12.51%) and orange juice futures (-1.62%) showed the biggest drop.

Main market quotes:

S&P 500 (F) (US500) 4,418.64 -85.44 (-1.90%)

Dow Jones (US30) 34,738.06 -503.53 (-1.43%)

DAX (DE40) 15,425.12 -65.32 (-0.42%)

FTSE 100 (UK100) 7,661.02 -11.38 (-0.15%)

USD Index 96.03 +0.48 (+0.50%)

Important events for today:
  • – Switzerland Producer Price Index (m/m) at 09:30 (GMT+2);
  • – US FOMC Member Bullard Speaks at 18:00 (GMT+2);
  • – Eurozone ECB President Lagarde Speaks at 18:15 (GMT+2).

by Justforex, 2022.02.14

We advise you to get acquainted with the daily forecasts for the major currency pairs.

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.

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