Date: March 14, 2022
- The Straits Times Index added 23 points or 0.7% at 3,249.66
- Russian invasion of Ukraine was still the main factor
- Oil and commodity price volatility spilled over to stocks
- Prices gyrated in tandem with hopes of talks, later those hopes were dashed
- Signs of stability emerging – oil fell 5.5%, US 10-year yield rose above 2%
- US inflation is running at 40-year high
- Two SPACs began trading as shares and warrants
- Private banks are “neutral’’ on equities, citing Russia-Ukraine risks
Despite the war entering its 3rd week, the STI managed a 0.7% rise
The war in Ukraine and its impact on oil and commodity prices continued to play havoc on stock markets everywhere, Singapore included. Another volatile week ensued as oil first shot up above US$130 a barrel, then fell sharply back to the US$110 level. Stocks followed suit, with prices also gyrating to news coming out of Ukraine with regards to negotiations with Russia.
On Wednesday and Thursday, hopes that some sort of settlement could be reached helped push prices up – the Straits Times Index rose about 3% over both days – but those hopes were dashed when talks that were held in Turkey between Ukrainian and Russian officials fell through.
By the end of a topsy-turvy week, the Straits Times Index stood 23 points of 0.7% better off at 3,249.66, whilst average daily volume amounted to a considerable S$1.61b, ranging from Friday’s low of S$1.13b to Monday’s S$1.8b.
As usual, index heavyweights such as the banks, Singtel and the Jardine group were instrumental in determining the index’s daily movements.
Oil prices continue to be volatile and are expected to remain so
The invasion of Ukraine by Russia two weeks ago has intensively disrupted commodity markets, sending oil prices skyward amid tough sanctions on Russia, which is one of the world’s most significant producers of crude. Crude prices remain at their highest levels since 2008, with WTI spiking as much as 30% since the Russian invasion.
Markets anticipate a reduction in the global supply of oil after the US imposed a ban on imports of Russian oil. A higher oil price could destroy consumer demand, which is already threatened by high inflation.
US inflation running at a 40-year high
On Thursday, new data showed the US consumer-price index surged at an annual rate of 7.9% for the month of February, above the prior month’s result of 7.5% and remaining at a four-decade high for the fourth straight month.
Core CPI, which strips out oil and food prices, rose 6.4%, above the forecast of 5.9% and above the last result of 6%. That underscores that growing inflationary forces are pressuring the US economy and consumers.
How Wall St stocks and bonds fared
Over the course of the week, stocks took a hit, but perhaps not as badly as might have been first though – the S&P 500 dropped by 2.9%, while the Dow Jones Industrial Average fell 2% and the Nasdaq Composite lost 3.5%.
The 10-year Treasury yield (which moves in the opposite direction of its price), rose 0.282 percentage point to 2.004%, while the CBOE Volatility Index, or VIX, closed at 30.75 on Friday after trading as high as 37.35 during the week. Even oil finished the week down 5.5%, at US$109.33.
What will the Fed do this week?
High inflation makes the Federal Reserve’s job harder. The central bank is expected to lift interest rates several times this year, starting this week. Higher oil and gas prices only make inflation worse, indicating that the Fed may need to be more aggressive in hiking rates, which in turn will weigh on economic growth. The Fed’s challenge is to tame inflation without tanking the economy.
As for what the Fed might do, Chairman Jerome Powell has already signaled that he would recommend a quarter-point rate increase, and there’s no reason to think the rest of the voting members won’t agree.
However, what markets will be looking out for will be information on future rate hikes and the Fed’s plans for further quantitative easing.
Two SPACs begin trading as shares and warrants
Units of two Special Purpose Acquisition Companies (SPACs), Vertex Technology Acquisition Company (VTAC) and Pegasus Asia began trading last week as shares and warrants.
Private banks “neutral’’ on equities
The Business Times on Friday reported the views of several private banks on what the war means for stocks.
It that Credit Suisse believes that a short-lived conflict is more likely than a protracted war. “Hence we keep portfolios positioned for above-trend growth with elevated inflation and central bank tightening’’ CS’s chief investment officer John Woods was quoted as saying. “We remain ‘neutral’ equities and ‘underweight’ government bonds.
UBS Global Wealth Management was also reported as having a “neutral’’ call on equities. Kelvin Tay, its regional chief investment officer was quoted saying that UBS believes “it is currently hard for investors to attach confidence in any individual market call materializing’’.
However, he added that his bank also notes that historically, geopolitical events, even those that have changed the course of history, have rarely left a lasting mark on markets.
Meanwhile, Standard Chartered Wealth Management’s chief investment office said in a note “It is normal for equity markets to recover strongly from geopolitical-related selloffs within the ensuing 6-12 months. Therefore, history suggests the best course for investors is to stay invested in a diversified allocation and to hedge near-term risks’’.
