Marketmind: collateral damage | Investment News

A preview of the day ahead at the Sujata Rao markets

All problems pale in comparison to the tragedy of Ukrainians fleeing bombed cities.

Others see damage of a different kind – from nearly worthless Russian stocks on investors’ books to soaring commodity prices that will show up on the grocery and energy bills of consumers around the world.

And the ripple effects are still spreading.

After the S&P 500’s worst day since October 2020, stock markets showed no signs of recovery on Tuesday, with Wall Street futures falling another 1% and Europe faring less well. Since mid-February, European banks have lost a quarter of the value of their shares and a fall in profits seems inevitable

The next move being considered – a ban on Russian energy imports – could make matters worse; Capital Economics estimates that this will push Brent (currently around $120) to $160 a barrel and European natural gas to €300 per megawatt hour from around €215 currently.

Europe and a group of emerging economies would fall into recession.

Europe is resisting this ban, but that hasn’t stopped Brent from jumping another $4 a barrel. Meanwhile, the green transition is becoming increasingly expensive – from aluminum and steel used in wind turbines to nickel, a crucial component of electric vehicle batteries, prices continue to soar.

Estimates suggest supply chain issues have pushed average U.S. new-vehicle transaction prices nearly one-fifth above year-ago levels. The hit could be bigger in the coming year, and more so in Europe – nearly half of Germany’s nickel comes from Russia.

Fast-paced events and daily jumps in commodity prices render economic data obsolete. Still, they are useful in assessing what might follow; Oil import costs triggered Japan’s biggest current account deficit since 2014, the data showed.

February CPI in the United States, due Thursday, is expected to come in at 7.9% year-on-year, but with last week the fastest surge in gasoline prices in 17 years, the impression of March could eclipse that.

This leaves central banks with the growth-inflation conundrum. In the euro zone, where policy options are arguably the most limited, German two-year “breakevens,” a future indicator of inflation, soared above 5%.

Commodity prices https://fingfx.thomsonreuters.com/gfx/mkt/egvbkqbonpq/Pasted%20image%201646687011742.png

Key developments that should further guide markets on Tuesday:

— BOJ’s Kuroda rules out policy tightening to deal with cost inflation

– German industrial production increases in January

-United States trade balance/inventories

-The central bank of Poland meets.

(Reporting by Sujata Rao; Editing by Dhara Ranasinghe)

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