Stock markets rise as Fed plans interest rate hike despite war in Ukraine
European stock markets were up after Federal Reserve Chairman Jerome Powell announced that the central bank would raise interest rates in March despite the Ukraine crisis.
The FTSE 100 (^FTSE) rose 0.9% to 7,394.56 points, dismissing concerns about the crisis and soaring energy prices.
Fed Chairman Jerome Powell said: “With inflation well above 2% and a strong labor market, we believe it will be appropriate to raise the target range for the federal funds rate at our meeting more later this month.
“The process of removing political accommodation under the current circumstances will involve both increases in the target range for the federal funds rate and a reduction in the size of the Federal Reserve’s balance sheet.”
Elsewhere in Europe, the French CAC (^FCHI) rose 1.1% and the DAX (^GDAXI) rose 0.1% in Germany.
New figures released on Wednesday showed eurozone inflation hit a new high in February as energy prices soared, intensifying the policy dilemma at the European Central Bank (ECB). Russia accounts for around 40% of the bloc’s natural gas imports.
Consumer price inflation accelerated to 5.8% from 5.1% in January, beating market expectations of 5.4%. This is the fourth consecutive month in which the inflation rate has reached a record high.
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It comes as analysts said soaring energy prices heightened fears of ‘stagflation’ as oil prices surged above $111 (£83.45) a barrel.
“Anxiety is once again spreading through global financial markets with fears of stagflation taking hold, as the conflict in Ukraine mounts inflationary pressures and threatens to derail global growth,” said Susannah Streeter. , senior investment and market analyst at Hargreaves Lansdown.
However, with Biden under increased pressure to stop crude imports from the Kremlin, “hitting Russia even harder with boycotts will cause a sharp ricochet of financial pain,” Streeter said.
“The worry is that it won’t do much to break Russia’s immediate resolve, which could lead to a protracted economic conflict,” she added.
Read more: UK to impose financial sanctions on Russian central bank
Benchmark oil prices soared above $111 a barrel on Wednesday to a multi-year high as officials warned global energy security was at risk amid the Ukraine crisis.
The latest surge came after members of the International Energy Agency (IEA) agreed to release supplies from their oil reserves and despite Western efforts to exclude oil and gas from their sanctions against Russia.
Brent (BZ=F) rose 6% to $111.3 a barrel. The benchmark oil index rose above $105 a barrel in intraday trading last week, topping that level for the first time since 2014. U.S. light crude (CL=F) rose more than 5.8% to reach $109.44.
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Investors are awaiting a meeting of OPEC and other major producers, including Russia, later on Wednesday, where they will discuss whether to increase production to temper price increases, which are contributing to inflation.
Meanwhile, natural gas (GN=F) recorded its third day of strong gains, it was up 3.9% at the time of writing.
Some also fear that the crisis could drive up food prices after wheat hit a 14-year high. Chicago’s most actively traded contract (ZW=F) hit $10.23 a bushel, the highest level since March 2008. The price of grain has risen nearly a third in the past month, pushing the cost of everything from bread to cookies. and noodles.
Corn prices also hit their highest level since 2012, when there was a drought in the United States as well as wildfires in Russia and Ukraine.
Russia and Ukraine, which account for 20% of the world wheat and corn market, the Kremlin is also the largest exporter of ammonium nitrate, which is used in fertilizers.
Experts say soaring oil and wheat prices paint a grim picture for inflation as conflict upends global commodity market, sending energy and agriculture prices to record highs For years.
With companies like Apple (AAPL), BP, Shell, Exxon (XOM) and Airbus (AIR.PA) exiting the Russian market, the “trend is likely to worsen” with significant consequences for global materials supply first keys as well as for demand. for goods and services, because everything becomes more expensive.
Michael Hewson, chief analyst at CMC Markets, said: “Not only do we see it in energy prices, but we also see it in the prices of precious and industrial metals, of which Russia is a key supplier, and the prices of agricultural raw materials as well.
“Rising agricultural commodity prices are a bigger concern, and there are two reasons for that.”
Other commodities also hit record highs. Aluminum prices (ALI=F) reached a record high. Three-month aluminum on the London Metal Exchange rose 2.9% to $3,570 a tonne
Nickel neared an 11-year high as traders brace for a supply disruption, while zinc and copper also pushed higher.
Russia is a major metals producer and produces 6% of the world’s aluminum and 7% of its mined nickel.
Read more: How Russia’s War on Ukraine Affects Stock Prices
US benchmarks opened in the green on strong labor market data and, as the Fed announced, it plans to raise interest rates for the first time since 2018 despite the war in Ukraine.
Wall Street’s S&P 500 (^GSPC) rose 64.36 points, or 1.1%, to 4,350.42. The tech-heavy Nasdaq (^IXIC) rose 0.8%. The Dow Jones (^DJI) rose 1%.
The Fed’s announcement came as job growth in the country exceeded market expectations. U.S. businesses added more jobs than expected last month as COVID cases plummeted and restrictions eased.
Payrolls rose by 475,000 in February, according to data from the ADP Research Institute. The initial print for January showed a fall of 301,000 during the month, the worst since April 2020, but has been revised to a gain of 509,000.
Meanwhile, US President Joe Biden announced he would close US airspace to Russia and called President Vladimir Putin a “dictator” in his first State of the Union address. He also warned that Putin would “pay an ever-high price” for invading Ukraine.
Asian stock markets fell overnight amid renewed pressure with the Nikkei (^N225) down 1.7% in Japan, while the Hang Seng (^HSI) fell more than 1.8 % in Hong Kong and the Shanghai Composite (000001.SS) was down 0.1%.