Infotech

Stock market: Ukraine and the approach of the Fed meeting are cracking the world’s financial markets


Posted Jan 24, 2022, 7:15 PMUpdated on Jan 24, 2022 at 7:26 PM

A wind of panic blew on the world stock markets on Monday. In addition to concerns about the rate hike and the US Federal Reserve meeting on January 25 and 26, there are now geopolitical tensions around Ukraine.

The United States and the United Kingdom have announced the evacuation of part of their diplomatic personnel in the face of the “growing” threat of an invasion of the country by Russia. NATO has placed its forces on alert and decided to send reinforcements to Eastern Europe.

As a result of this explosive cocktail, the fire that had consumed tech stocks on Wall Street last week spread to all risky assets, first and foremost equities and cryptos. Returning to their crisis reflexes, investors fell back on safe havens, such as gold, the dollar and government bonds. The Swiss franc thus reached its highest level against the euro in more than six years.

Fear Index

A sign of this renewed tension, the VIX, often considered the index of fear, approached 38 points in session, its highest level since October 2020. After the Nasdaq (the most technological of American indices), it is the S&P 500, that of the 500 largest capitalizations on Wall Street, which entered a “correction” on Monday. In stock market language, this means that it has now lost more than 10% compared to its last peak (January 3, at 4,796.56 points). At the European close, the S&P 500 and the Nasdaq were down around 4%.

The European stock markets, which had resisted rather well last week, have this time yielded. The Parisian CAC 40 index dropped 3.97% to 6,787.79 points, the German Dax dropped 3.80%, and Milan lost 4.02%.

Cryptos

The fall is even steeper for the most speculative and fragile assets. Cryptos, in the first category, never stop falling. Bitcoin, down 50% from its November high, extended its slide from last week. It lost more than 6% in the session, momentarily falling below $34,000, while Ethereum plunged more than 7%.

The “small and mid caps” are among the fragile values, small and mid caps less resistant to changes in the environment than the behemoths of the stock market. In the United States, their index, the Russell 2000, is now moving 20% ​​below its last peak. It is one of the first major indices to have entered “bearish” territory.

The Bears Victory

Already, on the markets, the “bears” (those who bet on a correction of the markets, unlike the “bulls” (bulls) – claim victory. For them, monetary tightening and slowing growth have created fertile ground for the bubble of the Covid years to burst. Will the threat of an invasion of Ukraine by Russia appear retrospectively as the event that tipped the markets?

Rare are those who venture such hypotheses, but some professionals warn in any case: for them, the purge is not over. The Fed meeting on Tuesday and Wednesday will be decisive. Investors expect a first rate hike in March and four rate hikes this year, but fear that the Fed will go even further, either by accelerating the rate of recovery of “Fed Funds”, in other words its monetary rates, or by engaging in “quantitative tightening”. Paraphrasing a famous line from the hit series Game of Thrones, Morgan Stanley strategist Michael Wilson said “winter has come” for equity markets.

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