U.S. Futures Drop as Crude Surges on Embargo Talk: Markets Wrap

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(Bloomberg) — U.S. equity futures slid and crude oil soared Monday after the Biden administration raised the prospect of working with allies to ban imports of Russian oil, stoking fears of growing inflationary pressures.

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S&P 500 and Nadaq 100 contracts fell more than 1%. Secretary of State Antony Blinken said Sunday the U.S. and its allies are looking at a coordinated embargo following Russia’s invasion of Ukraine, while ensuring appropriate global supply. Shares in Australia were steady, while futures earlier pointed to declines in Japan and Hong Kong.

The euro tumbled, declining below parity with the Swiss franc. The dollar was mostly higher against key peers. Demand for havens has taken a greenback gauge to the highest since 2020 and spurred a rally in sovereign bonds. Yields retreated in Australia and New Zealand.

The Swiss franc, another bolthole in times of stress, slipped against the dollar after a governing board member of the Swiss National Bank said it’s ready to intervene to tackle rapid strengthening.

Brent crude climbed as high as $139 a barrel, while West Texas Intermediate scaled $130 a barrel, before both paring some of the rally. Traders are also assessing a drop in Libyan output.

Grains, metals and energy have surged on concerns of supply disruptions due to Russia’s military action, ensuing sanctions and a reluctance to trade with a resource-rich nation that’s becoming a global pariah. Palladium hit an all-time high.

An index of commodities jumped the most last week on record, raising the specter of escalating price pressures. The global economy was already struggling with high inflation due to pandemic-era snarls.

The Federal Reserve and other key central banks face the tricky task of tightening monetary policy to contain the cost of living without upending economic expansion or roiling risky assets.

“For the U.S. economy, we now see stagflation, with persistently higher inflation and less economic growth than expected before the war,” Ed Yardeni, president of Yardeni Research, wrote in a note. “For stock investors, we think 2022 will continue to be one of this bull market’s toughest years.”

Fed Bank of Chicago President Charles Evans said Friday the central bank should increase interest rates to close to its “neutral” setting this year, implying as many as seven quarter-point hikes.

“Central banks are facing an exogenous stagflationary shock they cannot do much about,” Silvia Dall’Angelo, senior economist at Federated Hermes, wrote in a note.

In Russia, President Vladimir Putin signed a decree allowing the government and companies to pay foreign creditors in rubles, seeking to stave off defaults while capital controls remain in place. Sanctions will determine if international investors are able to collect payments, the Finance Ministry said.

China signaled more stimulus is on the cards by setting an economic growth target above forecasts. Premier Li Keqiang vowed at the opening of the National People’s Congress, the Communist Party-controlled parliament, to take bold steps to protect the economy as risks mount.

Here are some key events this week:

  • Chinese Foreign Minister Wang Yi briefing during NPC, Monday

  • China trade, foreign reserves, Monday

  • Apple new product event, Tuesday

  • EIA crude oil inventory report, Wednesday

  • China aggregate financing, PPI, CPI, money supply, new yuan loans, Wednesday

  • Reserve Bank of Australia Governor Philip Lowe speaks, Wednesday and Friday

  • European Central Bank President Christine Lagarde briefing after policy meeting, Thursday

  • U.S. CPI, initial jobless claims, Thursday

Some of the main moves in markets:

Stocks

  • S&P 500 futures fell 1.1% as of 8:19 a.m in Tokyo. The S&P 500 fell 0.8% Friday

  • Nasdaq 100 futures lost 1.4%. The Nasdaq 100 fell 1.4% Friday

  • Nikkei 225 futures declined 1% earlier

  • Australia’s S&P/ASX 200 Index fell 0.2%

  • Hang Seng Index futures dropped 1.4% earlier

Currencies

  • The Japanese yen was at 114.89 per dollar

  • The offshore yuan was at 6.3283 per dollar

  • The Bloomberg Dollar Spot Index rose 0.6% Friday

  • The euro was at $1.0877, down 0.5%

Bonds

Commodities

  • West Texas Intermediate crude surged 8% to $124.90 a barrel

  • Gold rose 0.7% to $1,985.71 an ounce

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