Volatility continued to dominate global markets as investors assessed geopolitical developments, with U.S. stocks failing to hold onto gains that reached 1 per cent earlier in the day. Oil briefly tumbled below US$100 a barrel after a recent surge that spurred inflation fears. Treasury 10-year yields hit the highest level since 2019.

A morning rally in equities driven by hopes of a new round of talks between Russia and Ukraine sputtered, with the S&P 500 falling into a “death cross” -- a technical pattern that has at times presaged further weakness. The Nasdaq 100 closed in a bear market for the first time since March 2020, with the tech-heavy gauge down more than 20 per cent from its peak. Apple Inc. slid as one of its suppliers halted operations at its Shenzhen sites following a Chinese government-imposed lockdown. A gauge of the Asian nation’s stocks listed in the U.S. sank 12 per cent.

The White House is discussing President Joe Biden making a visit to unspecified destinations in Europe while Russia’s war on Ukraine is ongoing, according to people familiar with the matter. Ukrainian President Volodymyr Zelenskiy will make a rare wartime address by a foreign leader to both chambers of Congress, pleading with U.S lawmakers by video conference for more aid as Russian bombs reduce his cities to rubble.

Traders have boosted their expectations for the amount of Federal Reserve policy tightening that could occur this year, moving at one stage on Monday to fully price in seven standard quarter-point rate hikes. The last time the market for overnight index swaps linked to Fed meeting dates fully priced that much tightening was on Feb. 11, the day after U.S. consumer-price inflation numbers for January came in hotter than expected, prompting investors to wager on more hawkish central bank policy.

The Fed will begin this week a multi-month campaign to conquer inflation that could see Chair Jerome Powell moving even more aggressively after Russia’s war on Ukraine fanned prices further. Already pivoting to tightening monetary policy amid the fastest inflation in four decades, Powell and colleagues now have to deal with the economic fallout of the war, which threatens to deliver the twin blows of weaker growth and even-quicker inflation.

Comments:

• “There aren’t a ton of signs that volatility will ease, at least in the short-term,” said Chris Larkin, managing director of trading at E*Trade from Morgan Stanley. “Looking ahead to the Fed decision, the market has been bracing for a rate increase for quite some time now — so the shock waves may not be too severe. But, there’s no question investors and traders alike will be looking for signs from the Fed on a quickened pace of rate hikes and any change in sentiment.”
• “We are experiencing extraordinary volatility in global equities compounded by wavering market sentiment, and the risk of recession intensifies on spiraling commodity prices,” Louise Dudley, portfolio manager for global equities at Federated Hermes, wrote in a note. “We expect ongoing swings in the short term as geopolitical uncertainty over Russian crude persists.”
• The war “is still in the driving seat,” said Fiona Cincotta, senior financial markets analyst at City Index. “We’ve got, obviously, the Fed’s rate decision this week, which is going to be quite key. Any comments from Powell about the outlook for the U.S. economy, given rising stagflation fears and rising inflation fears, could potentially drive the market quite far as well.”

Here are some key events to watch this week:

• China one-year medium-term lending facility rate, economic activity data, Tuesday
• EIA crude oil inventory report, Wednesday
• FOMC rate decision and Fed Chair Jerome Powell news conference, Wednesday
• Bank of England rate decision, Thursday
• ECB President Christine Lagarde, Executive Board member Isabel Schnabel, Governing Council member Ignazio Visco and Chief Economist Philip Lane speak at a conference, Thursday
• Bank of Japan rate decision, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.7 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 1.9 per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index fell 0.8 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.2 per cent
• The euro rose 0.3 per cent to US$1.0948
• The British pound fell 0.3 per cent to US$1.3003
• The Japanese yen fell 0.8 per cent to 118.19 per dollar

Bonds

• The yield on 10-year Treasuries advanced 15 basis points to 2.14 per cent
• Germany’s 10-year yield advanced 12 basis points to 0.37 per cent
• Britain’s 10-year yield advanced 10 basis points to 1.59 per cent

Commodities

• West Texas Intermediate crude fell 6.7 per cent to US$102.04 a barrel
• Gold futures fell 1.5 per cent to US$1,955.70 an ounce