HomeContributorsFundamental AnalysisInvestors are Navigating a World of Rising Risks

Investors are Navigating a World of Rising Risks

Risks in financial markets are increasing, and investors had a snapshot of what sort of market reaction could come if Russia invades Ukraine. Last Friday saw the US warn of an imminent attack which sent oil prices 5% higher over two trading days, with Brent fast approaching the $100 price tag. Equity markets also suffered steep losses as the S&P 500 dropped 1.9%, and the Nasdaq Composite tumbled 2.8%. Asian markets are catching up with Friday’s Wall Street losses with Japan’s Nikkei falling more than 2%, while markets in China, Hong Kong, and South Korea are all in the red.

The S&P 500, Nasdaq, and Dow Jones Industrial futures are all pointing towards a cautious start for the week, and US Treasuries are stable as investors await more information.

The deterioration in the Russia situation is stoking massive concerns about price pressures as it could lead to disruption in energy and agricultural supplies. Markets are already on edge over how central banks will act to tame inflation, currently sitting at multi-decade highs. Moreover, US consumer price data released on Thursday gave a strong impression that central bank policymakers have been caught off guard and need to speed up the tightening cycle.

Interest rates futures are now implying a 60% chance of the Federal Reserve delivering a 50-basis point rate hike on March 17, up from 20% before the CPI release. That has led to further flattening in the US yield curve where the widely watched spread (10-year minus 2-year Treasury yields) has reached 0.42%. An inverted yield curve would suggest to many that a recession is looming, and that would likely cause a further selloff in risk assets, so investors need to keep a close eye on bond yields over the coming weeks.

This week, the US economic calendar provides new updates on producer prices, retail sales, housing starts, existing home sales, and the FOMC minutes. However, it is speeches from the Federal Reserve officials that will move interest rates expectations with New York Federal Reserve Bank President John Williams, St. Louis Federal Reserve Bank President James Bullard, Cleveland Federal Reserve Bank President Loretta Mester, and Chicago Federal Reserve Bank President Charles Evans all scheduled to speak.

Given all market forces in play, the only certainty here is further market volatility. As a result, long-term investors will be looking for bargain opportunities while traders try to play the intraday moves.

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