At the end of the trading day on Monday, Wall Street was roiled once again as major stocks plunged during the day’s trading sessions. The Russia-Ukraine conflict is the main reason for the grim outlook. Reports also indicate that financial conditions are tighter than ever since 2020. Meanwhile, bond markets during Monday’s trading sessions indicate increased inflationary pressures may be on the horizon.
Global Investors Get Concerned about Strained Financial Conditions
Equities traders did not have a pleasant day during Monday’s trading sessions as the S&P 500, Nasdaq, NYSE, the Dow, and many other stocks plunged in value. Covid-19’s price shocks, economic downturn and ongoing Russia-Ukraine war in Europe are no longer to blame.
Reports claim the Russian army has engaged in brutal military war but economic sanctions are also affecting Russia’s economy. Moreover, economists have noted the sanctions are affecting other economies worldwide and this weekend, the International Monetary Fund (IMF) warned the “economic consequences are already very serious.”
A massive rise in the prices of food and energy has caused financial conditions to tighten. The 2/10’s swaps curve is at 15bps and will hit zero soon, showing how tight conditions really are. 1/
— Raoul Pal (@RaoulGMI) March 4, 2022
The IMF discussed how sanctions and warfare have added “extraordinary uncertainty” and the situation could cause inflationary pressures, supply chain disruptions, and price Shocks. Furthermore, on Monday, Reuters reported that the current financial conditions worldwide are the “tightest in two years.”
The last major occurrence of a crisis situation affecting markets globally was on March 11, 2020, otherwise known as ‘Black Thursday.’ DZ Bank strategist Rene Albrecht explains if inflation rises and “if the central banks take their mandates seriously, you will see a further (tightening) in financial conditions.”
Volatility of the Bond Market
Bitcoin.com News covered the U.S. Treasury yield curve on March 6. It showed signs of a recession. Bond markets continue to reflect a harsh economy and added inflation of close to “2.79% over the next decade,” according to data from Monday morning’s trading sessions.
It is disconcerting and disturbing to observe the irrational pricing action on financial markets. We are seeing a lot of this right now in a wide range of markets… commodities and bonds in particular
— Stephen Koukoulas (@TheKouk) March 7, 2022
The last week has seen extreme volatility and discontent in the bond markets. On March 2, Ikigai Asset Management’s chief investment officer Travis Kling remarked the “last time bond market volatility was this high, the Fed cut rates 100 bps and did 3 trilly of QE in six weeks.”
A slower growth rate of labor force, an older population and the secular fall in interest rates from the 1980s led to a secular bull market. This secular bull market began in 2009. Investors began to run out of yield in bonds and started looking for income from stocks. pic.twitter.com/7gBrlqK47m
— Jurrien Timmer (@TimmerFidelity) March 7, 2022
In a March 7 note sent to Barron’s Alexandra Scaggs, Matthew Luzzetti and Deutsche Bank economists discussed the fear of long-lasting inflation and the irritability it may bring to the U.S. central bank.
“In light of recent energy price moves in response to events in Ukraine…long-run inflation expectations could be at risk of moving to an uncomfortable level for Fed officials, especially given the backdrop of these other forces pointing to persistently elevated inflation,” the Deutsche Bank economists said in a statement.
Stocks have seen a significant decline in their value over recent months, but the cryptocurrency economy is also feeling the effects of an unstable and uncertain economy. Today’s crypto market has lost 2.8% to the U.S. dollar, dropping down to $1.78 billion. The price of gold, however, was $2K an ounce Monday. It is now trading at $1,997 each ounce. On Monday, the price of a barrel crude oil shot up to $120.33 per barrel.
You think the current global economic situation is fair? Are investors concerned about the tightening financial environment worldwide? Please comment below on your views.
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