Risky assets fell again following reports of an attack on a nuclear power plant in Ukraine, while commodities continued to rise amid inflationary impacts from the conflict.
Oil soared to nearly $120 a barrel on the news before easing back to around $112 – but still up 44% year-to-date – as news emerged that a surge in production continued. to an agreement between the United States and Iran is not close to materializing. Meanwhile, there were new spikes in commodities such as nickel, copper and aluminum as escalating sanctions against Russia threatened general supply chains.
The current turmoil leaves central banks somewhere between a rock and a hard place. The Federal Reserve, for example, must weigh the likely economic damage to growth against inflationary pressure from commodities. Chairman Powell indicated earlier in the week that an interest rate hike of 0.25% instead of 0.5% was imminent, which was initially comforting to investors, but added that he was “too early to tell if Russia is changing the rate trajectory.”
Further confirmation of a recovery in the US economy is expected later in the form of the monthly Nonfarm Payrolls report, although this lagging indicator does not capture current strain impacts.
The limited appetite for risky assets is clearly illustrated by the performance of the main indices. Year-to-date, the Dow Jones is now down 7%, the S&P 500 8.5% and the Nasdaq 13.5%.
The FTSE 100 is certainly not immune to global uncertainty, but the latest round of stress has sent the index into negative territory for the year. The UK’s leading index held on tight to small gains, propelled by its defensive nature, inflation-proof stocks and broad exposure to the oil and mining sectors. However, after another weak opening in early trade, the FTSE100 is now down 2.7% year-to-date.