US equity futures slid Monday amid fears about inflation risks for the world economy as oil soared after the Biden administration raised the prospect of working with allies to ban imports of Russian crude.
S&P 500 and Nasdaq 100 contracts fell more than 1 per cent, Australian shares dipped and traders elsewhere in the Asia-Pacific braced for a volatile open. Brent crude hit $US139 a barrel, and West Texas Intermediate scaled $US130 a barrel, before both paring some of the rally.
The euro sank – dropping to parity against the Swiss franc for the first time since 2015 – on concerns about the economic outlook for Europe, which relies on Russian energy. Havens such as sovereign bonds and gold rallied. A dollar gauge rose and is around the highest levels since 2020.
Secretary of State Antony Blinken said Sunday the US and its allies are looking at a coordinated embargo following Russia’s invasion of Ukraine, while ensuring appropriate global supply.
The Swiss franc, a 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.
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 hits a record.
The global economy was already struggling with high inflation due to pandemic-era snarls. The Federal Reserve and other key central banks now face the tricky task of tightening monetary policy to contain the cost of living without upending economic expansion or roiling risky assets.
“For the US 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 mount risks.