It’s War… Russia invaded Ukraine, sending commodity spot markets and bonds higher while pushing general equities lower at the outset.
What it means— The Russians gave us some great one-liners over the past two weeks as they mocked U.S. intelligence that showed preparation for an invasion, and then they proved themselves to be liars by invading. The two-month disinformation campaign also showed that U.S. intelligence has very good sources inside the Russian regime. Russian President Putin laughably claimed the goal is to demilitarize Ukraine, which is something that happened in 1994 when Ukraine agreed to relinquish its nuclear weapons in exchange for a security agreement with several nations, including the U.S.A. and Russia. So much for treaties.
The U.S. dollar, gold, oil, and a few other commodities initially shot higher, while general equities fell off, down around 2.5%, but then those moves reversed later in the day and equities finished in the green.
Investors hate uncertainty. War isn’t a good outcome, but for the markets, it’s better than the threat of war. The news isn’t so good for Russian stocks. The VanEck Russia ETF fell more than 20% on Thursday, its second-largest drop in history, and it is down more than 50% from its recent high. War and market volatility are joined at the hip. Expect more manic-depressive market action.
Our attention now will turn first to the U.S. and its allies to see how deep the latest round of sanctions will cut and then to the Fed. The invasion-fueled selloff ran in front of the Fed’s expected hawkish monetary policy at the March meeting. If the markets remain in turmoil through mid-March, expect the Fed to be dovish, which should give the markets a temporary push higher.
This line of thinking is what led the tech-heavy Nasdaq to generate three more optimistic days. Oil Briefly Tops $100 per Barrel… The price of oil pushed above $100 per barrel in the early morning hours on Thursday after Russia invaded Ukraine.
What it means— Oil prices retreated later in morning and then fell on the day after Western sanctions, which did not include energy, were announced. It’s no accident that Russia invaded during the depths of winter when Germany, its large natural gas client, can’t afford to go without Russian energy. By the time spring arrives, Russia will have firmly planted itself in Ukraine and likely will have installed a puppet regime.
Germany likely will spend the remainder of the year trying to secure alternative natural gas supplies. They will call upon all producers to increase production, which is the exact opposite of what national leaders called for at the latest climate change summit. It’s worth remembering that often natural gas is not the primary objective of exploration and production. It’s the ancillary result of producing oil. If we increased natural gas supplies in the U.S., we would also increase oil production. That could work to our national economic advantage, even though it is counter to green energy and electric vehicle policies of the current administration.
January New Home Sales Down 4.5%… Sales fell more than 10% in the Northeast and were down nationally more than 9% from the same time last year.
What it means— Just like housing starts, new home sales are noisy, and the January numbers have an added wrinkle. The December new home sales figure was revised higher, from 811,000 to 839,000. If that number had not been pushed up, then the January report would have been off by just 1.5%
from December. And let’s not forget the massive snowstorm that swept across New England in January, which likely put off a weekend or so of house hunting. If new home sales were slowing down because of falling demand, you’d expect the median sale price to be falling, which isn’t the case. The median new home sale price jumped from $395,500 in December to $423,300 in January. That’s lower than the record high of $427,300 set last October, but not by much.
Taliban Calls on Russia and Ukraine to End Conflict Peacefully, While Russia Presides Over U.N. Security Council Meeting About its Invasion…
After Russia invaded Ukraine, the Islamic Emirate of Afghanistan released a statement that read:
“The Islamic Emirate of Afghanistan is closely monitoring the situation in Ukraine and expresses concern about the real possibility of civilian casualties. The Islamic Emirate of Afghanistan calls for restraint by both parties. All sides need to desist from taking positions that could intensify violence. The Islamic Emirate of Afghanistan, in line with its foreign policy of neutrality, calls on both sides of the conflict to resolve the crisis through dialogue and peaceful means.”
In other hypocritical news, Ukraine called for a special meeting of the UN Security Council (UNSC) on Tuesday to discuss the dire situation as Russia amassed troops ahead of its invasion. The Presidency of the UNSC, which rotates, currently is held by Russia.
Data supplied by HS Dent Research
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