Russian conflict in Ukraine and big inflation report will keep stock market volatile next week

Traders on the floor of the NYSE, February 25, 2022.

Source: NYSE

Russia’s invasion of Ukraine will continue to be a major concern as cautious investors watch for new inflation data and rising oil prices in the week ahead.

Stocks last week sold off in volatile trading as oil rose more than 20% and a host of other commodities rose on supply worries. Investors sought safety in bonds, pushing prices and the 10-year Treasury yield up to 1.72% on Friday. The dollar rallied, pushing the dollar index up 2% on the week.

“We just don’t know what can happen over the weekend. It looks like the Russians are getting stronger and more aggressive,” said Jim Caron, head of macro strategies for global fixed income at Morgan Stanley. InvestmentManagement.

“If nothing happens over the weekend, or if there are peace talks coming up, then the 10-year bond yield could go up 10 to 15 basis points. It could have that swing,” Caron said. Yields move opposite the price. (1 basis point equals 0.01%).

The Federal Reserve will also be a focus, with investors focusing on its impending interest rate hike on March 16. But Fed officials won’t make public speeches during the quiet period leading up to their meeting.

The economic calendar is relatively light for the week ahead, with the exception of Thursday’s February Consumer Price Index report.

According to Dow Jones, economists expect headline inflation to hit 7.8% year-over-year, up from 7.5% in January, the highest level since 1982. Headline inflation includes food and energy prices.

“The risk is on the upside. It will be a shock if we get a handful of 8%,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.

Investors will also focus on how the market itself is trading. The S&P 500 fell 1.3% to 4,328 last week, while the Nasdaq lost 2.8% to 13,313.

“The major averages are all in a downtrend here. They seem to be rallying and then running out of steam,” said Paul Hickey, co-founder of Bespoke. “Until you get some kind of break, you want to be a little careful. It’s really worrying, all that stuff.”

Hickey said the market behaves similarly to other disputes.

“In the short term, there’s a lot of uncertainty,” Hickey said. “I think the playbook is similar. You tend to see a lot of sloshing – big fluctuations up and down – and eventually things start to level out a few months later. … The question is where does the one go? -this ?”

boiling oil

After a week of gains, oil jumped sharply again on Friday, with West Texas Intermediate surging above $115 for the first time since 2008. WTI rose 7.4% on Friday and 26% for the week, to s set at $115.68. On Friday morning, Russia’s battle for control of Europe’s largest nuclear power plant spooked investors.

The Russian invasion of Ukraine has sparked more inflation fears, and economists are already raising their inflation forecasts, due to rising oil prices. The whole commodity complex has shifted upwards, since Russia is a key producer of wheat, palladium, aluminum and other commodities.

Rising oil prices can be concerning because they can generate one of the biggest impacts on inflation and do so quickly.

Russia is unique in that it is a very large commodity exporter and has the ability to impact many markets. It is one of the world’s largest exporters of crude oil and natural gas, with Europe as its main customer. It is the largest exporter of palladium and wheat.

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The oil jump is already hitting American consumers at the pumps. Gasoline prices were $3.83 a gallon unleaded on Friday, up 11 cents in one day and 26 cents in one week, according to AAA.

“The national average could hit $4 a gallon next week,” said John Kilduff, partner at Again Capital.

In the oil market, Kilduff said there was some rapid buying on Friday. “There is still room to climb, as we continue to price in the loss of Russian crude oil,” he said.

The United States and its allies have not sanctioned Russian energy, but the sanctions have inhibited buyers, banks and shippers who fear violating sanctions against Russia’s financial system.

“It’s pretty clear that no one wanted to run out before the weekend,” Kilduff said. “There is still room to climb as we continue to price in the loss of Russian crude oil.”

Oil traders are also watching whether Iran is able to strike a deal that would allow it to sell its oil on the market, in exchange for ending its nuclear programs. This could then bring 1 million barrels back to market, but analysts say there will still be a shortfall.

Calendar for the coming week

Monday

Earnings: Ciena, Squarespace, ThredUp

3:00 p.m. Consumer credit

Tuesday

Earnings: Dick’s Sporting Goods, Bumble, Casey’s General Stores, Sumo Logic, Stitch Fix, Petco

6:30 a.m. NFIB Small Business Survey

8:30 a.m. International trade

10:00 a.m. Wholesale trade

Wednesday

Earnings: Campbell’s Soup, Marqueta, Fossil, Asana, Oatly, Thor Industries, Crowdstrike, United Natural Foods, Express, Adidas, Vera Bradley

10:00 a.m. BLOWS

Thursday

Earnings: JD.com, Ulta Beauty, American outdoor brands, DocuSign, Wheels Up Experience, Zumiez, Rivian Automotive

7:45 a.m. European Central Bank policy decision

8:30 a.m. First unemployment registrations

8:30 a.m. Consumer Price Index

2:00 p.m. Federal Budget

Friday

10:00 a.m. Consumer Sentiment

10:00 Q.S.S.

James T. Quintero