Dow futures rose Monday to kick off an important week, as the Russia-Ukraine war continues to escalate and the Federal Reserve could hike rates for the first time since 2018.
Futures on the Dow Jones Industrial Average gained 219 points, or 0.7%, while S&P 500 futures climbed 0.4%. Nasdaq 100 futures dipped 0.3%, however, as Apple shares fell more than 1% in the premarket.
Ukraine and Russia resumed talks on Monday. A Ukrainian official said the country’s objectives were to secure a ceasefire and an immediate withdrawal of Russian troops, along with other security guarantees.
Fighting has intensified around Ukraine’s capital, Kyiv, while Russian forces bombard cities across the country, killing civilians who are unable to escape. The financial fallout of stiff Russian sanctions will come into sharper focus in the coming days ahead of a scheduled sovereign bond payment.
Commodity prices, which had been surging recently amid the conflict, cooled off on Monday.
U.S. crude futures slid nearly 6% to $102.83 per barrel, while the international Brent benchmark fell 5.2% to $106.86 per barrel. Gold futures dropped 1.3% to $1,959.30 per ounce, while palladium slid 8.8% to $2,550 per ounce.
“The recent moves in a range of commodity prices are extreme, and if these moves hold for a prolonged period of time, the economic damage would be significant, but we still do not believe recession needs to be the base outcome, and do not see equities falling from current levels,” JPMorgan strategist Mislav Matejka said in a note.
U.S. Treasurys also sold off, pushing yields sharply higher. The benchmark 10-year yield jumped more than 8 basis points to 2.08%, its highest level since July 2019. The 2-year rate climbed 7 basis points to 1.82%. One basis point equals 0.01 percentage points.
Fed rate hike expected
The Fed is expected to raise its target fed funds rate by a quarter percentage point from zero at the end of its two-day meeting Wednesday. Investors are also looking to the central bank for its new forecasts for rates, inflation and the economy, given the uncertainty from the escalated geopolitical tensions.
“At the moment, the Fed is expected to be cautious when it comes to interest rate policy in 2022, given the conflict in Ukraine,” Lindsey Bell, chief markets and money strategist at Ally. “The conflict is adding complexity to the Fed’s already difficult job. The central bank will likely remain data-dependent as it makes rate decisions throughout the year.”
Traders are also monitoring a Covid-19 spike in China that led Shenzhen — a major city in a key manufacturing hub — to shut down all nonessential businesses and impose city-wide testing.
The Dow fell 2% last week, suffering its fifth negative week in a row. The S&P 500 and the Nasdaq Composite dropped 2.9% and 3.5% last week, respectively, both posting their biggest weekly loss since Jan. 21.
Major averages have all dipped into correction territory as geopolitical risks and inflation fears sent asset prices falling. The blue-chip Dow is down nearly 11% from its record high, while the S&P 500 has fallen almost 13% from its all-time high. The tech-heavy Nasdaq has borne the brunt of the sell-off, falling more than 20% from its record high in November.
